L 


OUTLINES 


OF 


COMMERCIAL  LAW 


A  TEXT  BOOK  FOR  SCHOOLS 
AND  COLLEGES 


BY 


O.  B.JPARKINSON,  LL.  B, 

OF  THE 

STOCKTON,  CALIFORNIA.  BAR 


Students  Library 


STOCKTON,  CAL. 
1916 


€  "  *rr  -4    v-  •. 


Entered  According  to  Act  of  Congress  In  the  Year  1898,  by 

O.  B.  PARKINSON, 
In  the  Office  of  the  Librarian  of  Congress,  at  Washington. 


1 1 610 


PREFACE. 

The  fact  that  most  authors  of  Commercial  Law  text-books 
heretofore  published  have  endeavored  to  supply  a  text-book  which 
could  be  used  in.  every  State  in  the  Union,  and  at  the  same  time 
sufficiently  condensed  to  be  within  the  scope  of  a  college  text- 
book, and  consequently  have  omitted  many  important  details 
relating  to  the  every-day  business  law  of  particular  States,  is  the 
reason  for  the  production  of  this  work. 

This  book  is  based  on  the  Codes  and  Statutes  and  judicia? 
decisions  of  the  State  of  California,  and  is  designed  for  use  on  the 
Pacific  Coast. 

We  have  endeavored  to  avoid  general  statements,  which  are 
always  misleading,  and  have  tried  to  supply  the  exact  law  applica- 
ble to  each  subject  treated. 

AVe  have  refrained  from  any  extended  discussion  of  remedies 
or  practise  in  Court,  as  they  are  matters  which  are  understood 
only  by  regular  attorneys  of  long  practice,  and  can  not  possibly 
be  elucidated  in  the  few  pages  we  might  devote  to  them. 

We  have  supplemented  abstract  statements  of  law  with  numer- 
ous examples  showing  their  application,  and  would  call  especial 
attention  to  this  feature,  as  well  as  to  the  test  questions  requiring 
thoughtful  work  on  the  part  of  the  student. 

Besides  the  Codes  and  Statutes  referred  to,  a  number  of  other 
works  have  been  freely  consulted. 

The  illustrations  given,  so  far  as  possible,  are  taken  from 
decided  cases  of  the  Supreme  Courts  of  the  various  States,  and  of 


Vl  PREFACE. 

the  United  States,  so  that  such  cases  can  be  relied  upon  as  stating 
the  law  correctly. 

We  have  omitted  the  usual  collection  of  forms  for  the  reason 
that  a  form  seldom  can  be  made  to  apply  to  the  case  at  hand,  and 
consequently  serves  rather  to  confuse  than  aid. 

0.  B.  PARKINSON. 

Stoddon,  Gal.,  November,  1898. 


CONTENTS. 

CHAPTER.  PAGE 

I.  HISTORY  AND  INTRODUCTION 9 

II.  CONTRACTS 13 

III.  PARTIES  TO  CONTRACTS 16 

IV.  CONSENT  OF  PARTIES 21 

V.  CONSIDERATION 26 

VI.  THE  OBJECT 29 

VII.  INTERPRETATION,    NOVATION   AND   CANCELLATION  35 

VIII.  REMEDIES 40 

IX.  DEFENSES — STATUTE  OF  FRAUDS 47 

X.  DEFENSES — STATUTE  OF  LIMITATIONS 52 

XI.  DEFENSES — PERFORMANCE 57 

XII.  NEGOTIABLE  PAPER 66 

XIII.  PROMISSORY  NOTES 72 

XIV.  BILLS  OF  EXCHANGE ,    .  78 

XV.  CHECKS 84 

XVI.  TRANSFER  OF  NEGOTIABLE  PAPER 90 

XVII.  ENDORSEMENT 93 

XVIII.  PRESENTMENT  AND  NOTICE 98 

XIX.  GUARANTY  AND  SURETYSHIP 101 

XX.  INTEREST  AND  USURY 106 

XXI.  SALES  OF  PERSONAL  PROPERTY 109 

XXII.  DELIVERY 115 

XXIII.  WARRANTY 122 

XXIV.  CONDITIONAL  SALES  AND  MORTGAGES  127 


Vlll  CONTENTS. 

CHAPTER.  1'AGE. 

XXV.     BAILMENTS 134 

XXVI.     COMMON  CARRIERS :    .    .  145 

XXVII.     SHIPPING 158 

XXVIII.     AGENCY  . 161 

XXIX.     PARTNERSHIP 170 

'XXX.     CORPORATIONS 180 

XXXI.     FIRE  INSURANCE 193 

XXXII.     MARINE  INSURANCE 198 

XXXIII.  LIFE  AND  ACCIDENT  INSURANCE 201 

XXXIV.  REAL  PROPERTY 207 

XXXV.     DEEDS 214 

XXXVI.     MORTGAGES 221 

XXXVII.     LANDLORD  AND  TENANT 229 


COMMERCIAL   LAW 

CHAPTER  I. 

HISTOKY  AND  INTKODUCTION. 

Whenever  and  wherever  in  the  history  of  the  world  there  has 
been  an  association  of  persons,  some  rule  or  regulation  of  conduct 
has  been  found  necessary. 

The  first  law  that  we  have  any  record  of  was  almost  coincident 
with  the  creation. 

A  prohibitory  law  was  given  to  Adam  and  Eve  in  the  garden 
of  Eden,  and  a  punishment  was  meted  out  for  disobedience  of 
that  law;  and  through  all  authenticated  history  from  that  time  to 
the  present,  there  has  been  no  country  or  nation  able  to  maintain 
itself  without  some  code  of  laws. 

When  the  wants  of  people  were  few  and  easily  supplied,  few 
regulations  were  required  for  their  government,  but  as  education, 
arts,  sciences,  commerce,  and  civilization  generally,  have  been 
gradually  extended  during  the  centuries,  law  has  become  not 
merely  a  collection  of  rules,  but  a  distinct  science,  consisting  of 
a  most  complex  system  of  regulations  calculated  to  define  and 
specifically  set  forth  every  act  and  thing  which  a  person  may  be 
called  upon  to  do  in  his  intercourse  with  his  fellow-men. 

While  it  is  impossible  to  explain  the  meaning  of  law  in  a  sin- 
gle definition,  the  following  may  be  sufficiently  accurate  for  the 
purpose  of  this  work:  "Law  is  a  rule  of  action  dictated  by  some 
supreme  power  capable  of  enforcing  obedience  or  punishing  die- 
obedience." 


10  COMMERCIAL    LAW. 

Law  generally  may  be  classified  as  Natural,  Moral,  and 
Human,  or  Municipal.  Municipal  Law  consists  of  those  rules 
prescribed  by  the  supreme  power  of  a  state  or  country,  declaring 
what  is  right  and  proper,  and  forbidding  what  is  wrong. 

It  is  with  Municipal  Law  that  we  have  to  do  in  this  book,  and 
only  with  that  division  of  Municipal  Law  which  is  called  Civil 
Law. 

CRIMINAL  LAW  is  tnat  division  of  Municipal  J,aw  which 
prohibits  acts  which  are  against  public  peace  and  harmony,  and 
provides  penalties  for  the  punishment  of  wrongdoers. 

Such  crimes  as  murder,  robbery,  and  forgery,  and  the  punish- 
ments of  fine,  imprisonment,  and  death,  are  included  in  the  Crim- 
inal Law. 

CIVIL  LAW  comprises  the  rules  regulating  the  rights  of 
individuals  in  their  business  relations  with  each  other,  and  the 
remedies  for  the  breach  of  such  obligations;  as  in  case  A  owes  B 
$100,  the  law  declares  that  B  has  the  right  to  collect  it,  and  in 
case  A  refuses  to  pay,  the  law  provides  a  means  for  compelling 
payment. 

SOURCES  OF  LAW.— The  most  ancient  source  of  part  of 
our  modern  law  is  the  unwritten  law  established  in  England  many 
years  ago,  and  which  has  since  been  mostly  written.  It  is  called 
the  Common  Law. 

The  English  emigrants  brought  with  them  the  laws  of  Eng- 
land, so  that  this  Common  Law  became  transplanted  throughout 
the  United  States  as  the  English-speaking  people  gained  control 
of  this  country. 

STATUTE  LAW  consists  of  the  enactments  of  the  United 
States  Congress  and  of  the  Legislature  of  the  several  states.  In 
California  most  of  the  Statute  laws  are  incorporated  in  volumes 
called  Codes. 

The  Commercial  Law  is  for  the  most  part  contained  in  the 
Civil  Code  and  the  Code  of  Civil  Procedure. 

CONSTITUTIONS  AND    COURTS.— The  Constitutions  of 


HISTORY   AND    INTRODUCTION.  11 

the  United  States  and  the  State  Constitution,  and  the  judicial 
decisions  of  the  Supreme  Court  of  the  United  States,  and  of  the 
Supreme  Court  of  each  State,  are  further  sources  of  law. 

CONFLICT  OF  LAWS.— There  being  so  many  sources  of 
law  it  is  often  the  case  that  the  law  as  declared  from  one  of  these 
sources  conflicts  with  or  is  opposed  to  the  law  as  declared  from 
some  other  source,  hence  it  is  important  that  we  should  know 
which  law  will  govern  in  case  of  a  conflict. 

The  Constitution  of  the  United  States  is  highest  in  authority, 
and  extends  over  all  the  states,  and  the  states  are  allowed  to  make 
only  such  local  laws  as  do  not  conflict  with  the  Constitution  of 
the  United  States. 

The  laws  of  Congress  are  next  in  order,  and  are  in  force  in 
every  part  of  the  United  States.  The  State  Constitution  comes 
next  and  has  authority  within  the  limits  of  the  state.  Next  to 
the  State  Constitution  are  the  Statutes  passed  hy  the  State  Legis- 
lature. Lastly,  the  Common  Law  regulates  subjects  upon  which 
the  other  sources  are  silent.  The  laws  of  one  state  have  no 
authority  in  and  can  not  be  enforced  in  any  other  state. 

INTF.KNATIONAL  LAW.— Each  country  has  its  own  laws, 
and  lias  no  right  whatever  over  the  persons  and  property  of 
another  country;  but  for  mutual  protection,  the  leading  nations 
of  the  globe  have,  by  common  consent,  and  by  agreements  and 
treaties,  formed  what  is  known  as  International  Law,  or  the  Law 
of  Nations,  which  all  nations  are  in  honor  bound,  and  in  honor 
only,  to  respect;  e.  g.,  it  would  be  a  breach  of  International  Law 
for  a  neutral  nation  to  aid  with  ships  or  munitions  of  war  one  of 
two  nations  which  are  at  war  with  each  other,  or  to  protect  and 
refuse  to  deliver  or  punish  pirates.  There  is  no  means  of  enforc- 
ing obedience  to  International  Law  except  by  war. 

ADMIRALTY  AND  MAHITIME  LAW.— Admiralty  Law 
consists  of  the  rules  of  a  nation  regulating  commerce  and  ship- 
ping on  the  high  seas. 

Admiralty  jurisdiction  extends  to  acts  done  on  the  high  seas 


12  COMMERCIAL    LAW. 

during  a  \*ar,  while  Maritime  jurisdiction  extends  to  contracts 
touching  rights  and  duties  pertaining  to  commerce  and  naviga- 
tion in  time  of  peace. 

Under  these  laws  the  term  "High  Seas"  includes  the  Great 
Lakes  and  navigable  rivers,  even  within  the  limits  of  a  single 
state.  The  United  States  Courts  alone  have  jurisdiction  over 
cases  between  American  citizens  arising  under  these  laws. 

COMMERCIAL  LAW.— The  subjects  which  form  the  princi- 
pal part  of  this  book  were  originally  a  part  of  the  Common  Law, 
and  are  derived  mainly  from  the  customs  of  the  merchants  of 
London  and  Liverpool,  and  for  that  reason  the  particular  part 
referring  to  negotiable  paper  and  business  transactions  has  been 
called  the  "Law  Merchant." 

The  legal  maxim,  "Ignorance  of  the  law  excuses  no  one," 
applies  in  business  transactions  as  well  as  where  a  criminal  offense 
is  committed.  No  one  can  say  that  he  did  not  know  what  the 
law  was,  and  thus  escape  the  consequences  of  his  acts,  hence  it  is 
important  that  every  one  should  have  a  practical  knowledge  of  the 
laws  of  business. 


TEST  QUESTIONS. 

1.  Distinguish    critically    between    Criminal    Law    and    Civil 

Law. 

2.  Name  the  different  sources  of  law  in  the  order  of  their 

present  authority. 

3.  The  captain  of  a  vessel  on  Lake    Superior   runs  his  vessel 
into  and  damages    another   vessel.      Under   what    general 
law  should  the  damage  suit  be  brought? 

4.  What  was  the  Law  Merchant? 


CHAPTER  II. 

CONTRACTS. 

CONTRACTS  are  the  basis  of,  or  enter  into,  almost  every 
transaction  in  business  life,  hence  they  naturally  and  properly 
should  be  studied  first  as  a  whole. 

The  different  subjects  treated  of  under  the  title  "Commercial 
Law,"  such  as  agency,  partnership,  insurance,  and  negotiable 
paper,  are  merely  branches  of  the  Law  of  Contracts. 

DEFINITION. — A  Contract  is  an  agreement  for  a  considera- 
tion to  4o  or  not  to  do  a  certain  thing. 

The  word  "agreement"  implies  that  there  must  be  at  least  two 
persons  as  parties  to  the  Contract.  A  mere  voluntary  promise 
upon  the  part  of  one  individual  without  any  corresponding  prom- 
ise on  the  part  of  another  is  not  a  Contract. 

ESSENTIALS  OF  CONTRACTS.— It  is  essential  to  the 
existence  of  a  Contract  that  there  should  be: 

(1)  Parties  capable  of  contracting. 

(2)  Their  consent. 

(3)  A  lawful  object. 

(4)  A  sufficient  consideration. 

Each  of  these  essentials  will  be  fully  considered  in  subsequent 
chapters. 

Contracts  may  be  either  express  or  implied,  written  or  oral. 

An  EXPRESS  CONTRACT  is  one  the  terms  of  which  are 
stated  in  words;  as  for  example,  A  says  to  B,  "I  will  sell  you  this 
horse  for  $50."  B  says:  "I  accept  your  offer.  Here  is  $50." 
This  is  an  Express  Contract.  '» 

IMPLIED  CONTRACTS  are  those  the  existence  and  terms 
of  which  are  manifested  by  conduct;  as,  where  a  person  enters  a 

(13) 


14  COMMERCIAL   LAW. 

grocery  store,  asks  for  $1.00  worth  of  coffee,  receives  it,  and  walks 
away  without  saying  anything  about  payment.  It  is  implied  that 
he  will  pay  for  the  coffee,  and  he  is  as  liable  for  the  price  of  it  as 
though  he  had  expressly  said  that  he  would  pay.  Even  where 
there  is  an  Express  Contract  made,  there  are  usually  one  or  more 
Implied  Contracts  accompanying  and  connected  with  the  trans- 
action; as  where  a  person  makes  an  Express  Contract  for  the  pur- 
chase of  groceries,  it  is  in  cities  usually  implied  that  the  grocer 
will  deliver  the  groceries,  and  also  implied  that  the  customer's 
house  will  be  open  to  receive  them  during  reasonable  hours. 

And,  generally,  there  is  the  implied  agreement  in  every  trans- 
action that  the  parties  thereto  will  do  whatever  is  necessary  to 
make  possible  the  carrying  out  of  the  conditions  of  the  Contract. 

WRITTEN  CONTRACTS  are  those  in  which  the  terms  of 
the  Contract  are  set  forth  by  means  of  handwriting,  printing,  or 
by  any  characters,  on  any  material,  with  any  instrument,  and 
signed  by  the  parties. 

The  particular  advantage  of  Written  Contracts  is  that  the 
exact  language  assented  to  by  the  parties  may  be  preserved  for 
future  reference;  so  it  is  important  in  writing  a  Contract  to  use 
such  materials  as  will  make  the  writing  indelible  and  permanent. 
A  Contract  written  in  lead  pencil  is  legal,  but  is  easily  altered. 

ORAL  CONTRACTS  are  those  in  which  the  Contract  is 
entered  into  by  means  of  spoken  words.  In  general,  Oral  Con- 
tracts are  equally  as  binding  upon  the  parties  as  Written  Con- 
tracts. (Exceptions  will  be  noted  in  a  subsequent  chapter.) 

The  great  advantage  of  Oral  Contracts  is  in  the  ease  with 
which  they  can  be  entered  into.  In  matters  of  small  consequence 
Oral  Contracts  are  preferred  to  the  formal  written  ones. 

CONFLICTING  CONTRACTS.— If  a  Contract  in  writing  is 
made,  and  also  an  Oral  Contract  concerning  the  same  object  and 
between  the  same  parties,  which  is  materially  different  from  the 
written  agreement,  the  written  agreement  will  control  the  Oral 
Contract.  In  so  *ar  as  the  Oral  Contract  is  in  conflict  with  the 


CONTRACTS.  15 

written  one  it  is  of  no  effect.  The  reason  for  this  is  that  the 
Written  Contract  is  presumed  to  be  more  carefully  and  formally 
made,  and  to  be  the  result  of  deliberation,  and  therefore  more 
nearly  to  express  the  real  intentions  of  the  parties  than  an  oral 
one.  For  a  like  reason  parts  in  handwriting  control  printed 
parts  in  a  Contract. 

ENTIRE  CONTRACT.— An  Entire  Contract  is  one  in  which 
an  entire  performance  on  the  part  of  one  party  must  precede  per- 
formance bv  the  other;  as  where  a  carriage  maker  agrees  to  manu- 
facture a  certain  carnage  at  a  price  of  $100.  The  carriage  must 
be  fully  completed  before  the  maker  can  demand  any  part  of  the 
pay.  A  half -finished  carriage  would  be  of  no  use  to  the  customer. 

SEVERABLE  CONTRACTS  are  those  in  which  complete 
performance  by  one  party  is  not  necessary  before  anything  can  be 
required  of  the  other.  When  the  price  is  expressly  apportioned 
by  the  Contract  or  the  apportionment  may  be  implied  to  each 
item  to  be  performed,  the  Contract  will  generally  be  held  to  be 
peverable;  as  in  case  a  Contract  is  made  for  the  purchase  of  ten 
tons  of  pig  iron  at  $80  per  ton.  If  only  five  tons  were  delivered 
the  contractor  could  claim  payment  for  the  five  tons  at  $80  per 
ton. 


TEST  QUESTIONS. 

1.  Name  the  essentials  of  every  Contract. 

2.  State  fully  the  difference  between  "Express"  Contract  and 

"Implied"  Contract,  and  the  advantage  of  each. 

3.  A   agrees   to   build  a  house   for   $2,000,  the   money  to  be 
paid   when   the  house  is  completed.     A   never  completes 
the  house.     Can  he  draw  any  of  the  contract  price?    Ex- 
plain fully. 

4.  A  agreed  with  B.  that  B  should  deliver  100  tons  of  hay  at 

$5  a  ton  to  A.  B  delivered  twenty  tons  and  no  more. 
Discuss  the  transaction  fully  as  a  Contract,  and  the  reme- 
dies of  each  party. 


CHAPTER  III. 

PARTIES  TO  CONTRACTS. 

ALL  PARTIES  except  those  forbidden  by  law  may  contract 
about  any  legal  object  in  a  lawful  manner,  but  there  are  excep- 
tions expressly  made  by  the  Statute  Law,  as  follows:  "All  per- 
sons are  capable  of  contracting  except — 

(1)  Minors; 

(2)  Persons  of  unsound  mind;  and 

(3)  Persons  deprived  of  civil  rights." 
MINORS  are: 

(1)  Males  under  21  years  of  age; 

(2)  Females  under  18  years  of  age; 

and  in  computing  the  periods  specified  the  time  must  be  calculated 
from  the  first  minute  of  the  day  on  which  persons  are  born  to  the 
same  minute  of  the  corresponding  day  completing  the  period  of 
minority;  that  is,  if  a  male  child  is  born  on  the  10th  day  of  March, 
at  6  o'clock  A.  M.,  he  becomes  of  age  on  the  10th  day  of  March, 
twenty-one  years  after,  at  one  minute  past  12  o'clock  A.  M. 

In  general,  a  minor's  Contracts  are  considered  valid  until  he 
wishes  to  avoid  them,  which  he  may  do  either  before  his  majority 
or  within  a  reasonable  time  afterwards.  Some  Contracts,  how- 
ever, the  law  especially  declares  a  minor  may  Hot  make,  hence  these 
are  absolutely  void  from  the  beginning;  as, 

A  Contract  appointing  an  agent. 

Ail  other  Contracts  (not  valid),  however,  are  merely  voidable. 
The  marriage  of  a  minor  does  not  remove  the  disability  of  minor- 
ity; that  is,  a  minor  who  marries  does  not  acquire  any  more  rights 
and  is  not  deprived  of  any  rights  whatever  in  regard  to  Contracts 
by  reason  of  such  marriage. 
(16) 


PARTIES   TO    CONTRACTS.  17 

By  a  special  Act  of  Legislature  a  marriage  settlement  given 
by  a  minor  who  is  capable  of  contracting  marriage  is  valid,  and 
can  not  be  afterwards  avoided.  A  minor  who  falsely  represents 
himself  as  being  of  full  age  can  not  afterwards  avoid  the  Contract 
on  the  ground  of  his  minority.  This  rule  is  in  harmony  with  the 
legal  maxim,  "No  one  is  allowed  to  take  advantage  of  his  own 
wrongful  act." 

PERSONS  OF  UNSOUND  MIXD.— This  is  quite  a  com- 
prehensive term  and  includes  idiots,  lunatics,  drunken  persons, 
or  persons  who  from  great  age,  sickness,  or  other  causes  are  not 
of  sound  mind.  A  person  who  claims  that  his  contract  is  not 
valid  because  of  his  unsoundness  of  mind  must  show  that  his 
mind  was  unsound  at  the  time  of  entering  into  the  contract.  The 
fact  that  he  was  of  unsound  mind  before  or  after  the  date  of  enter- 
ing into  the  contract  would  not  be  sufficient  to  relieve  him  in  any 
degree  from  responsibility  for  his  contract. 

A  person  who  enters  into  a  contract  while  he  is  of  unsound 
mind,  may,  when  he  is  restored  to  sound  mind,  refuse  to  carry 
out  his  part  of  the  contract,  on  the  ground  it  was  entered  into 
-virile  he  was  not  capable  of  contracting.  This  sort  of  a  contract, 
therefore,  is  said  to  be  a  Voidable  Contract. 

A  person  who  has  a  monomania,  that  is,  who  is  of  unsound 
mind  on  one  subject  only,  can  not  avoid  any  contract  which  he 
may  make  concerning  other  subjects. 

If  a  person  is  an  absolute  idiot,  his  contract  is  absolutely  void, 
and  of  no  effect  whatever.  And  where  a  person  has  been  judi- 
cially declared  insane,  and  a  guardian  appointed,  his  contracts  are 
void  even  though  made  during  a  lucid  interval. 

DRUNKARDS. — Drunkenness  is  in  itself  no  excuse  for  non- 
performance  of  a  contract,  and  contracts  entered  into  while  under 
the  influence  of,  or  suffering  from  the  effect  of,  intoxicating  liquor, 
are  only  voidable  when  a  person  is  so  drunk  as  to  seriously  impair 
the  reasoning  faculties,  or  in  other  words,  to  make  him  of 
unsound  mind. 

It  has  been  decided  that  where  a  person  voluntarily  becomes 
2 


18  COMMERCIAL    LAW. 

intoxicated  that  he  may  enter  into  a  contract  and  afterwards 
avoid  it,  such  intoxication  is  no  defense  whatever  against  a  person 
who  wishes  to  compel  him  to  perform  his  contract. 

PERSONS  DEPRIVED  OF  CIVIL  EIGHTS  are  not  abso- 
lutely debarred  from  making  contracts,  but  may  make  them,  and 
after  they  are  released  from  prison  or  restored  to  their  rights, 
they  may  avoid  the  contracts.  In  case  of  a  person  who  is  impris- 
oned for  life,  however,  an  exception  is  made.  His  contracts  are 
considered  valid. 

DISAFFIRMANCE  OF  CONTRACTS.— A  person  is  said  to 
disaffirm  a  voidable  contract  when  he  refuses  to  be  bound  by  its 
terms.  The  right  of  disaffirmance  may  be  exerted  by  one  who 
has  entered  into  a  contract  while  under  disability.  He  is  allowed 
a  reasonable  time  after  the  disability  is  removed.  As  in  the  case 
of  a  minor,  a  man  must  disaffirm  his  contract  within  a  reasonable 
time  after  becoming  twenty-one  years  of  age.  Should  the  minor 
die  before  reaching  his  majority,  the  contract  may  be  disaffirmed 
in  the  same  manner  in  his  behalf,  by  the  administrator  of  his 
estate.  What  would  be  a  reasonable  time  depends  on  the  cir- 
cumstances of  each  case. 

In  one  case  a  minor  sold  a  promissory  note,  received  +he  pur- 
chase money,  and  endorsed  the  note  to  the  purchaser,  and  for 
eleven  months  after  she  arrived  at  her  majority,  made  no  offer  to 
return  the  purchase  money  or  disaffirm  the  sale.  It  was  held  that 
eleven  months  was  an  unreasonable  time,  and  she  therefore  could 
not  recover  the  note. 

Disaffirmance  must  be  manifested  by  some  positive  act.  The 
party  disaffirming  must  do  or  say  something  to  show  {hat  he 
avoids  the  contract.  Thus  it  is  held  that  where  a  minor  grantor 
of  land  on  attaining  his  majority  executes  another  deed,  this 
second  deed  will  avoid  the  first. 

AFFIRMANCE. — A  voidable  contract  may  be  affirmed  within 
a  reasonable  time  after  (not  before)  the  disability  is  removed, 
either. 


PARTIES    TO    CONTRACTS.  19 

(1)  By  express  ratification  in  words:  or 

(2)  By  acts  which  imply  affirmance;  or 

(3)  By  omission  to  disaffirm. 

We  observe  that  disaffirmance  must  be  more  formal  and 
explicit  than  affirmance.  By  merely  saying  or  doing  nothing  a 
person  will  affirm  a  contract,  while  if  he  wishes  to  disaffirm,  he 
must  make  it  known  in  some  positive  manner. 

The  right  of  affirmance  or  disaffirmance  is  confined  exclusively 
to  the  person  who  is  under  disability;  so  that  while  a  minor  has  a 
right  to  disaffirm  certain  contracts,  an  adult  who  enters  into  the 
contract  with  the  minor  has  no  right  to  disaffirm. 

CONTRACTS  FOR  NECESSARIES.— A  minor  or  a  person 
of  unsound  mind  can  not  disaffirm  a  contract,  otherwise  valid,  to 
pay  the  reasonable  value  of  things  necessary  for  his  support  or 
that  of  his  family.  This  is  an  exception  to  the  general  rule  of 
contracts  stated  above,  and  it  is  just  in  its  operation,  both  to  the 
person  under  disability  and  those  dealing  with  him. 

It  is  necessary,  however,  that  the  credit  be  given  to  the  minor 
or  incompetent  person  himself,  otherwise  he  is  not  chargeable, 
though  he  has  received  the  articles.  Reasonable  value  is  a  ques- 
tion of  fact  and  would  ordinarily  be  the  market  value  of  the  goods 
at  the  time  they  were  furnished. 

NECESSARIES  OF  LIFE  are: 

(1)  Proper  food; 

(2)  Clothing; 

(3)  Lodging; 

C4)  Medical  attendance; 

(5)  Education. 

What  is  necessary  depends  on  a  person's  station  in  life,  and  is 
not  restricted  to  what  is  absolutely  necessary  merely  to  support 
life.  A  person  with  a  large  estate  can  bind  himself  to  pay  for 
more  expensive  clothes,  better  food  and  lodging,  and  a  higher 
education,  than  a  poor  person.  Each  case  must  be  determined 
according  to  its  own  circumstances.  In  one  case  kid  gloves,  silk 


'20  COMMERCIAL   LAW. 

cravats,  walking  canes,  aiid  cologne,  were  held  not  to  be  neces- 
saries. Generally,  luxurious  articles  of  utility  may  be  included 
under  the  term  "'necessaries,"  e.  g.,  a  watch;  while  luxurious  arti- 
cles which  are  purely  ornamental  are  not  included  as  necessaries, 
e.  g.,  ear-rings;  and  even  an  article  which  is  considered  necessary 
for  persons  in  any  station  in  life,  such  as  flour,  would  not  be  a 
necessary  if  a  person  were  already  well  supplied  with  flour;  and  a 
dealer  furnishing  such  person  with  unusual  quantities  of  rlour 
could  not  recover  pay  for  more  than  was  required  for  ordinary  use. 
ALIEN  ENEMIES. — In  the  event  of  war  breaking  out 
between  the  United  States  and  a  foreign  country  all  business  is 
suspended  between  the  countries,  and  every  subject  of  the  foreign 
country  is  considered  an  enemy;  hence,  by  furnishing  goods  to  a 
merchant  in  the  foreign  country,  a  merchant  of  the  United  States 
would  be  aiding  the  enemy;  therefore  all  such  contracts  are  abso- 
lutely void. 

TEST  QUESTIONS. 

1.  Who  are  competent  parties  to  a  contract? 

2.  Distinguish  between  "void"  and  "voidable"  contracts. 

3.  A  minor  orphan  contracts  a  bill  for  butter  and  flour,  and 
is  sued  for  the  price.     He  pleads  infancy  as  a  defense.     In 
whose  favor  should  the  Court  decide? 

4.  A  farm  hand  wrote  and   signed  a  promissory  note.      Upon 

being    sued   for  the  amount,  he  alleges    intoxication  as  a 
defense.     Can  he  defeat  the  suit  upon  such  plea? 

5.  A  person   enters  into  a  contract  and   afterwards   becomes 
insane.      The  contract  being  otherwise  valid,  may  it  be  enforced 
against  his  estate? 

6.  Illustrate    fully  the    manner  in  which  a  contract    may  oe 
"affirmed"  or  "disaffirmed." 

7.  Name  the  "necessaries  of  life"  and  illustrate  what  articles 
would  or  would  not  be  "necessaries"  under  certain  circum- 
stances. 


CHAPTER  IV. 

CONSENT  OF  PAETIES. 

CONSENT  is  the  agreement  by  the  parties  to  a  contract  con- 
cerning the  object  of  the  contract,  and  must  be  free,  mutual,  and 
communicated  by  each  to  the  other.  Until  there  is  an  agreement 
containing  these  three  elements,  there  is  no  consent  to  the  con- 
tract. 

A  PEOPOSAL  or  offer  must,  of  course,  be  made  by  one  party 
wishing  to  enter  into  a  contract.  This  does  not  bind  the  person 
who  makes  the  offer  until  his  offer  is  accepted,  and  he  may  with- 
draw it  at  any  time  before  acceptance.  The  rule  is  that  an  oral 
proposition  must  be  accepted  at  the  time  it  is  made,  or  at  furthest, 
before  the  parties  separate.  If  they  separate  without  having 
entered  into  the  contract,  the  offer  can  not  be  accepted  later  unless 
time  was  expressly  given. 

In  case  of  a  written  proposal  being  made  a  reasonable  time  is 
allowed  for  acceptance  or  refusal,  and  what  a  reasonable  time  ;s 
must  be  determined  by  the  circumstances  of  each  case. 

ACCEPTANCE. — The  parties  must  agree  upon  the  same 
thing  in  the  same  sense,  in  order  to  make  a  valid  contract;  hence 
the  acceptance  must  be  absolute  and  unqualified.  If  it  contains 
any  conditions  it  is  not  a  valid  acceptance,  but  amounts  in  effect 
to  a  new  proposal;  as  if  A  offers  to  sell  a  typewriter  to  B  for  $100 
cash,  and  E  replies,  saying,  "I  will  accept  your  offer  if  you  will 
take  my  note  instead  of  the  cash."  B  thus  makes  a  new  offer, 
which  may  be  accepted  by  A  or  not,  as  he  pleases. 

WEITTEN  PEOPOSALS.— In  case  a  proposal  is  sent  by  let- 
ter, the  offer  remains  open  until  the  letter  in  the  usual  course  of 
mail  would  reach  its  destination,  and  for  a  reasonable  time  there- 
after. 

(21) 


22  COMMERCIAL   LAW. 

The  acceptance  of  a  written  offer  takes  effect  as  soon  as  the 
party  accepting  it  has  put  his  acceptance  in  the  course  of  trans- 
mission to  the  proposer,  even  though  the  proposer  may  not  receive 
the  acceptance  for  a  long  time,  or  may  not  receive  it  at  all. 

This  may  seem  to  work  a  hardship  on  the  proposer,  but  he 
may  limit  the  time  for  holding  his  offer  open  for  acceptance  in 
this  manner:  "If  I  do  not  hear  from  you  within  ten  days  I  shall 
conclude  you  do  not  accept."  This  would  relieve  him  from  hold- 
ing open  the  offer  more  than  ten  days  even  though  an  acceptance 
had  been  mailed  within  the  ten  days  and  not  received  until  after 
the  ten  days  had  elapsed. 

In  case  an  offer  is  sent  by  mail,  and  within  proper  time  is 
accepted  by  mail,  we  have  seen  that  from  the  moment  the  letter 
of  acceptance  is  started,  the  acceptance  is  complete,  therefore,  if 
the  proposer  changes  his  mind  and  mails  a  letter  withdraAving  the 
offer  before  the  acceptance  reaches  him,  the  acceptance  is  never- 
theless effective  and  the  contract  is  complete. 

-IMPLIED  GENERAL  PROPOSALS.— Every  storekeeper  by 
placing  goods  on  his  shelves  and  opening  his  doors  to  the  public, 
thereby  invites  every  one  to  come  in  and  make  purchases,  and  any 
person  may  enter  such  store  and  demand  any  article  therein  dis- 
played on  tender  of  the  proper  price.  This  is  the  acceptance  of 
the  general  proposal,  and  when  thus  accepted  the  contract  is 
complete. 

CONSENT,  VOIDABLE.— A  consent  which  is  obtained  by 

(1)  Duress; 

(2)  Menace; 

(3)  Fraud; 

(4)  Undue  influence;  or 

(5)  Mistake; 

is  not  free,  and  the  contract  is  therefore  voidable  on  the  ground 
of  lack  of  consent. 

DURESS  consists  Li 

(1)  Unlawful  confinement  of  a  person  or  his  relatives; 


CONSENT    OF   PARTIES.  23 

(2)  The  unlawful  detention  of  his  property;  as  where  a  person 
holds  a  sum  of  money  and  refuses  to  deliver  it  until  a  contract  is 
entered  into.  And  under  the  first  subdivision  above,  one  who 
pays  money  for  his  release  from  prison  under  unlawful  confine- 
ment, may  recover  the  money  so  paid. 

MENACE  consists  of  a  threat  of  unlawful  injury  to  the  per- 
son or  character  or  property  of  a  person,  made  with  the  intent  of 
compelling  consent  to  a  contract.  A  person  who  enters  into  a 
contract  under  such  menace,  may  avoid  the  contract  on  that 
ground,  and  if  he  has  paid  anything,  may  recover  everything  he 
has  paid  by  reason  of  the  threat  made.  It  must  be  remembered 
that  the  threat  must  be  of  unlawful  prosecution.  A  threat  of 
lawful  prosecution  against  a  person  will  not  constitute  menace;  and 
a  person  claiming  menace  must  show  not  only  that  he  was  in  fear, 
but  that  he  had  reasonable  grounds  for  believing  that  he  or  his 
property  was  in  actual  danger. 

FEAUD,  generally,  is  said  to  be  some  deception  practised  with 
the  intent  of  inducing  a  person  to  enter  into  a  contract.  This, 
however,  is  not  strictly  correct.  In  order  to  constitute  fraud  in  a 
legal  sense  it  is  necessary  that  material  damage  should  be  done  by 
reason  of  the  deception. 

No  matter  what  false  statements  or  representations  are  made 
to  a  person,  if  he  does  not  believe  them,  and  is  not  deceived 
thereby  to  his  injury,  he  can  not  claim  to  have  been  defrauded; 
and  he  is  bound  to  use  such  diligence  as  an  ordinarily  prudent 
business  man  would  use  in  entering  into  contracts,  otherwise  he 
can  not  avoid  the  contract  on  the  ground  of  fraud,  as  the  law  will 
not  assist  any  one  who  is  defrauded  by  reason  of  his  own  negli- 
gence or  foolishness. 

Nevertheless,  if,  as  in  the  case  of  a  man  buying  a  horse, 
the  person  relies  entirely  on  the  dealers  judgment,  stating  that 
he  knows  nothing  about  a  horse  and  wishes  a  gentle,  well-broken 
animal,  and  the  dealer  by  wilful  falsehood -assures  him  that  the 
horse  is  all  that  is  desired,  when  in  fact  he. is  not,  the  purchaser 


24  COMMERCIAL   LAW. 

is  entitled  to  avoid  the  contract,  return  the  horse,  and  recem 
back  his  money  on  the  ground  of  fraud. 

CK1MINAL  LIABILITY.— A  person  who  defrauds  another, 
or  who  makes  any  contract  or  conveyance  with  the  attempt  to 
defraud  or  deceive,  or  to  hinder  or  delay  creditors  in  the  collec- 
tion of  their  just  debts,  is,  under  the  provisions  of  the  Penal  Code, 
guilty  of  a  misdemeanor,  and  may  be  punished  by  fine  and  im- 
prisonment, in  addition  to  any  civil  liability  in  damages  to  the 
injured  party. 

UNDUE  INFLUENCE  consists  in  taking  an  unfair  advantage 
of  another's  weakness  of  mind,  or  necessities,  or  distress,  or  by 
using  a  person's  confidence  unduly  to  induce  him  to  enter  into 
contracts;  as  where  a  child  would  take  advantage  of  an  aged 
father's  weakness  of  mind  to  induce  him  to  disinherit  other  chil- 
dren. Undue  influence,  however,  must  be  carefully  distinguished 
from  the  ordinary  influence  which  is  brought  to  bear  by  one  per- 
son upon  another  in  every-day  life  for  the  purpose  of  inducing 
the  making  of  contracts.  Just  what  amount  of  weakness  of  mind 
or  distress  on  the  part  of  one  party,  and  what  amount  of  influence 
exerted  on  the  part  of  the  other  party,  will  constitute  undue  in- 
fluence, so  as  to  make  the  contract  voidable,  is  a  question  of  fact 
to  be  determined  by  the  circumstances  of  each  case.  In  any 
event,  the  influence  so  exerted  must  have  resulted  in  damage  to 
the  person  influenced,  otherwise  the  contract  can  not  be  avoided. 

MISTAKE  is, 

(1)  An  unconscious  ignorance  of  a  fact  material  to  the  con- 
tract; or 

(2)  A  belief  in  the  existence  of  a  thing  material  to  a  contract, 
which  does  not  exist. 

It  is  absolutely  necessary  that  the  mistake  be  mutual;  therefore 
mistake,  under  the  law  of  contracts,  means  something  entirely 
different  from  what  is  ordinarily  meant  by  the  term. 

If  the  misapprehension  is  only  on  the  part  of  one  party,  the 
other  party  knowing  full  well  concerning  the  matter,  it  amount* 


CONSENT    OF    PARTIES  25 

to  a  deception  on  the  part  of  the  party  having  such  knowledge; 
as  if  A  thinks  he  is  selling  a  tract  of  land,  other  than  that  actually 
conveyed,  and  B  thinks  that  he  is  receiving  that  which  is  con- 
veyed, it  is  a  mutual  mistake;  but  if  A  knows  he  is  selling  a  tract 
of  land  other  than  that  B  thinks  is  conveyed,  it  is  a  fraud  on 
A's  part,  and  not  a  mistake.  To  take  advantage  of  mistake,  rea- 
sonable diligence  must  be  used  in  avoiding  the  contract  by  the 
party  who  is  injured,  and  he  must  return  anything  which  he  has 
received  under  the  contract  before  he  can  avoid  it. 


TEST  QUESTIONS. 

1.  Xame  three  elements  constituting  -consent. 

2.  A  physician  buys  a  horse  from  a  dealer  for  use  in  his  pro- 
fession; the  horse  proves  to  be  vicious  and  refuses  to  stand. 
Under  what  circumstances  would  the  contract  be  voidable, 
and  under  what  valid? 

3.  A  man  purchases  an  article  for  a  certain  but  unexpressed 
purpose;  it  proves  to  be  unfit  for  such  purpose.     May  he 
return  the  article  and  rescind  the  contract? 

4.  Distinguish    critically  between  "mistake"  and    "fraud"    in 

law  of  contracts. 


CHAPTER  V. 

CONSIDEKATION. 

CONSIDERATION.— In  all  contracts  there  is  in  reality  a 
consideration  offered  by  each  party  to  the  other  to  induce  him  to 
enter  into  the  contract.  For  convenience,  however,  money,  or  its 
equivalent,  is  usually  spoken  of  as  the  consideration  in  ordinary 
contracts,  and  the  thing,  other  than  money,  is  called  the  object 
of  the  contract. 

As  a  general  rule  all  contracts  require  a  consideration,  but 
there  are  two  exceptions. 

(1)  Negotiable  paper  in  the  hands  of  an  innocent  purchaser 
for  value  before  maturity. 

(2)  Certain  mutual  promises,  as  mutual  promises  to  marry. 
VALUABLE  CONSIDEKATION  consists  of— 

(1)  Any  benefit  to  the  promisor. 

(2)  Loss  or  inconvenience  to  the  promisee. 

It  is  not  therefore  necessarily  money  which  is  the  considera- 
tion, but  any  benefit,  and  the  word  "any"  includes  the  smallest 
benefit  which  is  of  value.  The  law  does  not  presume  to  'lay  what 
is  the  reasonable  value  of  an  article. 

Examples. — In  the  absence  of  fraud,  or  other  legal  reason  for 
avoiding  the  contract,  a  person  who  sells  a  fine  horse  for  $5.00 
must  abide  by  his  contract.  He  can  not  avoid  it  on  the  ground 
of  the  inadequacy  of  the  consideration. 

An  agreement  to  pay  in  future  greater  interest  on  a  note,  is 
sufficient  consideration  for  the  agreement  of  the  creditor  not 
to  sue. 

The  part  payment  of  a  note  when  all  is  due  is  not  sufficient 
consideration  for  a  promise  to  extend  the  time  of  payment. 
1 26) 


CONSIDERATION.  27 

GOOD  CONSIDERATION  consists  of  the  love  and  affection 
which  near  relatives  have  toward  each  other.  A  man  deeds  his 
son  a  house  and  lot  without  any  valuable  consideration — merely  as 
a  gift.  The  love  inducing  the  gift  would  be  a  good  consideration. 
Such  consideration  will  only  be  sufficient  after  the  gift  has  been 
made.  A  mere  promise  to  give  something  in  the  future,  even  to 
a  child,  can  not  be  enforced. 

It  is  the  duty  of  a  father,  mother  or  child  of  any  poor  person, 
who  is  unable  to  maintain  himself,  by  working,  to  maintain  such 
person  to  the  extent  of  their  ability,  and  the  promise  of  an  adult 
child  to  pay  for  necessaries  previously  furnished  to  a  parent  is 
binding.  The  law  in  such  cases  presumes  the  love  and  affection 
which  makes  the  good  consideration. 

CREDITOR'S  RIGHTS.— While  it  is  true  that  as  between 
the  parties  to  a  contract,  a  small  consideration,  or  the  considera- 
tion of  love  and  affection,  may  be  sufficient  to  support  a  contract, 
nevertheless,  if  a  person  deeds  valuable  property  for  an  extremely 
small  sum  to  a  friend,  vrith  the  understanding  that  it  is  to  be 
reconveyed  to  him,  and  this  contract  is  made  for  the  purpose  of  de- 
frauding his  creditors,  the  conveyance  may  be  set  aside,  and  the 
contract  declared  void  in  a  suit  brought  by  the  creditors.  The 
same  is  true  in  case  a  man  gives  his  property  to  his  relatives  in 
order  to  prevent  his  creditors  from  enforcing  their  just  claims; 
and  in  general,  when  there  are  creditors,  the  conveyance  of  prop- 
erty for  a  small  or  no  consideration,  is  considered  good  evidence 
of  fraud. 

ANY  CONSIDERATION  which  is  perversive  of  the  letter 
or  intent  of  the  law,  is  an  unlawful  consideration,  and  will  not 
support  a  contract;  as  A  gives  B  his  note  on  the  consideration 
that  B  will  procure  A's  escape  from  jail,  B  can  not  collect  any- 
thing on  the  note  because  the  releasing  of  prisoners  in  such  man- 
ner is  unlawful. 

IMPOSSIBLE. — Fverything  is  deemed  possible  which  is  pos- 
sible in  the  nature  of  tilings.  A  man  who  has  agreed  to  pay 


28  COMMERCIAL    LAW. 


$100  as  consideration  for  services  performed  can  not  avoid  pay- 
ment on  tiie  ground  of  impossibility  by  saying  that  it  is  impos- 
sible for  him  to  pay  the  hundred  dollars.  It  is  not  impossible  in 
the  nature  of  things.  A  mere  pecuniary  impossibility  is  not  a 
legal  impossibility. 

When  the  consideration  is  on  its  face  impossible  of  execution, 
the  entire  contract  is  void;  as  where  the  consideration  is  that  A 
shall  travel  from  San  Francisco  to  New  York  in  a  day. 

FAILING. — If  the  consideration  is  apparently  sufficient,  but 
in  fact  worthless,  or  if  sufficient  when  the  contract  is  made,  and 
subsequently  becomes  of  no  value,  this  failure  of  consideration 
will  make  void  the  entire  contract;  as  where  a  person  receives 
shares  of  stock  in  a  mining  company,  and  afterwards  discovers 
that  the  certificate  of  stock  has  been  forged. 


TEST  QUESTIONS. 

1.  A  man  in  contemplation  of  insolvency  conveys  his  property 
to  his  son.     May  his  creditors  enforce  payment  from  that 
property? 

2.  A  agrees  to  give  B  $100  to  leave  the  state  until  a  certain 
case   is   tried  so  as  not   to  be  a  witness.      B  does   so   and 
returns.      A  refuses  to  pay  the  $100.      Discuss  the  reme- 
dies of  £ 


CHAPTER  VI. 
THE  OBJECT. 

THE  OBJECT  of  a  contract  is  the  thing  which  it  is  agreed 
on  the  part  of  the  party  receiving  the  consideration  to  do,  or  not 
to  do:  or  in  other  words,  it  is  the  thing  about  which  the  agree- 
ment is  made;  as  in  the  case  of  the  purchase  of  a  horse,  the  horse 
is  the  object  of  the  contract. 

LAWFUL. — The  object  of  the  contract  must  be  lawful  when 
the  contract  is  made,  and  possible  and  ascertainable  by  the  time 
the  contract  is  to  be  performed. 

Where  a  contract  has  but  a  single  object,  and  such  object  .is 
unlawful,  the  entire  contract  is  void;  but  where  a  contract  has 
several  distinct  objects,  if  one  is  lawful  and  the  others  unlawful, 
the  contract  is  valid  in  regard  to  the  lawful  object,  and  void  as  to 
the  rest;  as  where  a  person  gives  a  mortgage  securing  an  individual 
note,  and  a  company  note,  if  the  company  note  is  void,  the  mort- 
gage security  will  nevertheless  be  good  as  securing  the  individual 
note. 

UNLAWFUL.— That  is  not  lawful  which  is 

(1)  Contrary  to  an  express  provision  of  law; 

(2)  Contrary  to  public  policy; 

(3)  Otherwise  contrary  to  good  morals. 

Under  the  definition  in  subdivision  one,  it  makes  no  differ- 
ence in  the  validity  of  the  contract  that  the  contract  is  not  crim- 
inal in  its  nature.  It  is  enough  if  it  is  contrary  to  the  provisions 
of  law;  as  if  a  man  agrees  for  a  consideration  to  drive  a  horse 
through  the  streets  of  a  city  at  the  rate  of  fifteen  miles  per  hour; 
fast  driving  being  prohibited,  the  contract  would  be  invalid,  even 
though  in  itself  there  is  no  wrong  in  driving  a  horse  at  a  rapid 
rate. 

(39) 


30  COMMERCIAL   .LAW. 

If  payment  is  refused  under  such  a  contract,  the  driver  can 
not  recover  the  consideration  in  a  suit  at  law,  because  the  con- 
tract is  unlawful,  and  in  accordance  with  the  legal  maxim,  "The 
law  will  not  aid  wrongdoers." 

Under  subdivision  two,  it  has  been  decided  that  agreements 
in  consideration  of  aiding  a  candidate  to  procure  an  office,  to 
share  the  salary  of  the  office,  are  contrary  to  public  policy  and 
therefore  void;  as  is  a  contract  to  keep  a  witness  for  the  gov- 
ernment out  of  the  way  until  after  a  trial  is  over.  In  either  of 
these  cases  no  part  of  the  contract  can  be  enforced. 

CONTRACTS  IN  RESTRAINT  OF  TRADE  also  come 
within  the  purview  of  subdivision  two  above,  as  being  against 
public  policy.  It  often  happens  that  a  person  builds  up  a  profit- 
able business,  and  people  are  attracted  to  his  place  of  business  by 
reason  of  his  personal  qualities.  If  he  sells  out  his  business  to  a 
stranger,  it  is  customary  for  the  stranger  to  require  a  contract 
from  him  to  the  effect  that  he  will  not  open  another  store  for  the 
transaction  of  the  same  kind  of  business,  as  he  would  probably  by 
so  doing  take  many  of  his  regular  customers  away  from  the 
stranger.  Such  contracts,  however,  are  not  void,  provided  the 
seller  agrees  to  refrain  from  carrying  on  a  similar  business  within 
the  limits  of  a  specified  county,  city,  or  part  thereof;  and  even 
such  a  contract  is  only  valid  so  long  as  the  buyer,  or  any  person 
deriving  title  to  the  good-will  from  him,  carries  on  a  like  business 
therein. 

It  is  held  that  where  A  agreed  not  to  carry  on  the  business  of 
street  paving  in  the  city  of  San  Francisco,  or  the  state  of  Cali- 
fornia, that  the  entire  contract  was  void  as  including  more  terri- 
tory than  allowed  by  lav/. 

A  contract  which  does  not  specify  any  territorial  limit  at  all, 
is,  of  course,  void;  as,  where  a  contract  was  entered  into  not  to 
engage  in  "any  branch  of  the  yeast  powder  business,"  the  con- 
tract was  held  to  be  absolutely  void. 

In  regard  to  partners,  however,  the  limit  within  which  any 


THE    OBJECT.  31 

outgoing  partner  may  carry  on  a  similar  business  on  dissolution 
is  the  boundary  of  the  city  or  town  where  the  partnership  bus- 
iness has  been  transacted,  or  a  specified  part  therein.  The  theory 
upon  which  contracts  of  restraint  of  trade  are  allowed  at  all,  is 
that  the  buyer  is  entitled  to  the  good-will  of  the  business.  Good- 
will is  the  expectation  of  continued  public  patronage.  Our  law- 
makers have  concluded  that  in  the  ordinary  lines  of  business  a 
man  can  not  expect  patronage  from  a  larger  extent  of  territory 
than  one  county,  hence  that  limit  has  been  fixed. 

CONTRACTS  RESTRAINING  MAEEIAGE.— Every  con- 
tract in  restraint  of  the  marriage  of  any  person  other  than  a  minor 
is  void;  but  this  does  not  affect  limitations  where  the  intent  was 
not  to  forbid  marriage,  but  only  to  give  the  use  until  marriage; 
thus  a  contract  by  which  a  father  agrees  to  give  his  son  one  thou- 
sand dollars  if  he  does  not  marry  until  he  is  twenty-one  years  of 
age,  is  in  all  respects  valid;  but  if  the  contract  is  that  the  son  shall 
forfeit  all  claim  to  his  inheritance  if  he  marries  at  any  time,  it  is 
invalid;  but  where  a  widow  is  given  the  use  of  certain  property 
until  she  remarries,  the  condition  is  valid,  as  merely  giving  the 
use  until  marriage  and  not  forbidding  marriage. 

BROKERAGE  CONTRACTS  are  in  all  cases  void.  The  pro- 
prietor of  a  so-called  marriage  bureau  can  not  enforce  the  collec- 
tion of  any  fee  agreed  to  be  paid  him  for  negotiating  a  marriage, 
as  the  contract  in  itself  is  against  public  policy,  in  that  it  en- 
courages marriage  of  persons  hastily,  and  as  a  mere  matter  of 
business  speculation. 

FRAUDULENT  CONTRACTS.— All  contracts  which  have 
for  their  object  an  exemption  of  any  one  from  responsibility  for 
his  own  fraud,  or  for  fraudulent  injury  to  the  person  or  property 
of  another,  are  against  the  policy  of  the  law,  and  therefore  void; 
as  for  example,  where  a  debtor  in  failing  circumstances  makes  a 
transfer  of  his  property  to  a  friend  for  the  purpose  of  defrauding 
his  creditors,  such  contract  is  absolutely  void  in  all  respects,  and 
creditors  may  recover  the  property  and  have  it  applied  to  the  sat- 


32  COMMERCIAL    LAW. 

isfaction  of  their  debts,  upon  proving  that  fraud  has  been  com- 
mitted. 

The  debtor  himself,  however,  is  bound  by  the  act  of  trans- 
ferring the  property  to  his  friend,  and  can  not  compel  the  friend 
to  give  back  the  property,  as  he  himself  committed  fraud,  and  the 
law  will  not  aid  wrongdoers.  The  law  provides,  however,  that  a 
debtor  may  make  assignments  of  his  property  to  any  person  in 
trust  for  the  benefit  of  his  creditors.  This  act  when  done  with- 
out fraud  is  valid,  and  any  surplus  that  may  remain  after  his 
creditors  are  paid,  the  assignee  must  return  to  the  debtor.  Undei 
what  is  termed  the  Xational  Bankruptcy  Law,  which  is  in  force 
in  all  the  states  and  territories,  creditors,  upon  proper  application 
to  the  Court,  may  compel  the  placing  of  his  property  in  the  hands 
of  an  assignee  for  the  purpose  of  being  sold  to  satisfy  their  claims. 
Any  assignments,  if  voluntary,  must  place  all  creditors  on  an 
equal  footing.  So  far  as  the  assignment  gives  one  creditor  a 
larger  share  than  another  it  is  void,  as  being  a  fraud  upon  other 
creditors. 

CONTKAEY  TO  GOOD  MOEALS.— A  note  given  by  a  wife 
for  land  conveyed  to  her  by  her  husband  in  consideration  of  her 
allowing  him  to  get  a  divorce,  has  been  held  void,  as  being  con- 
trary to  good  morals.  Obscene  publications  come  under  the  head 
of  immoral  contracts,  and  consequently  any  such  contracts  are 
void,  and  the  price  agreed  to  be  paid  can  ^ot  be  recovered  in  a  suit 
at  law;  and  under  the  Penal  Code  any  person  who  writes,  composes, 
distributes,  sells,  or  publishes  any  lewd  paper,  picture,  or  figure, 
or  sings  any  lewd  or  obscene  song  in  public,  is  guilty  of  a  mis- 
demeanor, and  his  contract  for  performance  of  any  such  acts  is 
absolutely  void. 

"Wagers  are  against  good  morals,  and  will  not  be  enforced  by  the 
Courts;  however,  it  has  been  held  that  before  the  wager  has  been 
decided  by  the  stake-holder  either  party  may  recover  his  money 
from  the  stake-holder,  but  that  after  the  money  has  been  paid  by 
him  to  one  of  the  parties,  the  transaction  is  complete,  and  the 
money  so  paid  can  not  be  recovered. 


THE    OBJECT.  33 

It  has.  been  held  that  where  a  purse  is  offered  by  way  of  pre- 
mium or  reward,  for  the  winner  of  a  horse-race,  it  does  not  come 
within  the  law  against  bets  or  wagers,  and  the  contract  may  be 
enforced. 

SUNDAY  CONTBACTS.— In  many  of  the  states  there  are 
laws  against  making  contracts  on  Sunday,  and  the  impression  is 
so  general  that  it  is  necessary  to  state  that  in  California  there  is 
no  Sunday  law,  and,  consequent!}',  any  contracts  which  would  be 
valid  on  any  other  day  of  the  week  would  be  valid  on  Sunday. 
Even  contracts  which  would  appear  to  be  in  desecration  of  the 
Sabbath,  such  as  a  contract  to  play  ball  on  Sunday,  are  valid,  and 
the  ball  player  may  collect  his  wages  for  his  services  performed 
on  Sunday,  if  his  claim  is  otherwise  valid.  Sunday  is,  however, 
a  legal  holiday,  and  certain  acts  relating  to  business  of  the  state 
and  the  Courts  are  not  valid  if  performed  on  that  day;  not  be- 
cause it  is  Sunday,  but  because  it  is  a  legal  holiday. 

ELEMENTS  OF  FEAUD.— As  has  been  stated  in  a  previous 
chapter,  a  mere  falsehood  is  not  necessarily  a  fraud,  and  the  fol- 
lowing elements  must  all  be  represented  in  a  contract  before  the 
contract  can  be  declared  void  on  the  ground  of  fraud. 

(1)  The  means  resorted  to  must  be  for  the  purpose  of  induc- 
ing the  one  deceived  to  enter  the  contract. 

(2)  They  must  be  false  in  fact. 

(3)  The  party  resorting  to  them  must  have  had  no  belief  in 
them,  or  no  reasonable  ground  for  believing  them. 

(-1)  The  party  deceived  must  have  relied  upon  them,  and  been 
justified  in  relying  upon  them. 

(5)  There  must  have  been  material  damage  to  the  party  de- 
ceived. 

From  the  fourth  element  it  will  be  seen  that  a  person  must 
exert  at  least  ordinary  care  in  accepting  any  statements  as  true, 
otherwise  he  can  not  claim  to  have  been  defrauded. 

In  the  case  of  a  sale  of  wool  which  had  been  exposed  to  a  rain- 
storm in  order  to  make  it  weigh  heavier,  the  seller  explained  the 
3 


34  COMMERCIAL   LAW. 

stains  on  the  sacks  caused  by  the  water  by  saying  that  they  were 
old  sacks.  It  was  held  that  the  purchaser  exerted  due  diligence; 
that  all  the  elements  of  fraud  were  present,  and  that  he  was  en- 
titled to  rescind  the  contract  and  receive  back  what  he  paid  for 
the  wool. 


TEST  QUESTIONS. 

1.  A  baseball  player  contracts  to  play  a  certain  game  on  Sun- 
day, for  a  consideration.     May  he  collect  the  sum  agreed 
upon? 

2.  A  marriage  broker  procures  a  wife  for  A  and  sues  him  for 

a  fee  of  $50.     Can  he  recover  judgment?     Give  reasons. 

3.  A  sells  his  store  to  B  and  agrees  not  to  open  another  store 
in  the  same  line  of  business.     Discuss  the  validity  of  the 
agreement. 

4.  A  agrees  to  give    his  daughter  $5,000  on  her    eighteenth 

birthday  if  she  remains  unmarried  until  that  time.     Can 
she  recover  the  $5,000  before  that  time?    Give  reasons. 


CHAPTER  VII. 
INTERPRETATION,  NOVATION,  AND    CANCELLATION. 

Even  though  a  contract  may  have  been  entered  into  by  formal 
and  carefully-drawn  writing,  or  by  the  most  explicit  oral  under- 
standing, yet  it  often  happens  that  the  meaning  is  not  plain,  and 
has  been  understood  differently  by  the  respective  parties;  hence 
certain  rules  have  been  laid  down  for  the  interpretation  of  con- 
tracts; and,  in  general,  all  contracts  are  to  be  interpreted  by  the 
same  rules. 

MUTUAL  INTENTIONS.— A  contract  must  be  interpreted 
so  as  to  give  effect  to  the  mutual  intention  of  the  parties  as  it 
existed  at  the  time  of  contracting,  so  far  as  the  same  is  ascertain- 
able  and  lawful.  Of  course,  so  far  as  any  part  of  the  contract  is 
unlawful,  it  is  void  and  of  no  effect.  The  language  of  a  contract 
is  to  govern  its  interpretation,  if  the  language  is  clear  and  explicit, 
and  does  not  involve  an  absurdity.  In  a  case  where  a  bond  was 
given  the  intention  was  to  have  it  read  "two  thousand  two  hun- 
dred dollars."  The  word  "thousand"  was  omitted,  and  it  read 
"two  two  hundred  dollars."  The  Court  decided  that 

the  language  did  involve  an  absurdity,  there  being  no  such  thing 
as  "two  two  hundred  dollars,"  and  that  therefore  oral  evidence 
would  be  admitted  to  show  what  was  intended. 

WRITTEN  CONTRACTS.— When  a  contract  is  reduced  to 
writing,  the  intention  of  the  parties  is  to  be  ascertained  from  the 
writing  alone,  unless,  through  fraud,  mistake,  or  accident  it  fails  to 
express  the  real  intention  of  the  parties;  as  in  a  case  where  a  man 
who  could  not  read  was  asked  to  sign  a  promissory  note  with  the 
understanding  that  it  provided  for  the  payment  by  him  of  $100. 
In  fact  the  note  provided  for  the  payment  of  $500.  The  Court 

(35) 


o6  COMMERCIAL    LAW. 

held  that  oral  evidence  of  the  intention  might  be  given,  and  the 
contract  was  declared  void  on  the  ground  of  fraud.  The  execu- 
tion of  a  contract  in  writing,  whether  the  law  requires  it  to  be 
written  or  not,  supersedes  ail  oral  agreements  concerning  the 
same  matter,  which  preceded  or  accompanied  it.  Effect  is  to  be 
ghen  to  every  part  of  a  contract  if  reasonably  practicable,  and 
the  whole  contract  is  to  be  taken  together  in  construing  the  mean- 
ing, and  not  by  parts;  and  where  there  are  several  contracts  relat- 
ing to  the  same  matters  between  the  same  parties,  they  are  to  be 
taken  together  as  parts  of  the  one  transaction;  as  in  cases  where 
a  number  of  letters  have  been  written  containing  proposals  and 
acceptances,  all  of  the  letters  will  be  read  together  as  forming  one 
contract,  the  parts  of  the  letters  containing  rejected  proposals 
being  rejected  from  the  contract. 

TECHNICAL  WORDS.— The  words  of  a  contract  are  to  be 
understood  in  their  ordinary  an^  popular  sense,  rather  than  ac- 
cording to  their  strict  legal  meaning,  unless  they  are  used  by  the 
parties  in  a  technical  sense;  and  such  technical  words  are  to  be 
interpreted  as  usually  understood  by  persons  in  the  business  or 
profession  to  which  they  relate.  A  word  which  is  used  with  a 
particular  meaning  in  one  portion  of  a  contract  is  presumed  to 
have  been  used  in  like  sense  in  other  places. 

The  word  "stubble,"  as  used  in  a  lease,  was  held  to  be  a  tech- 
nical word,  including  grain  remaining  uncut  after  the  period  of 
harvest,  as  well  as  the  straw  from  which  the  grain  had  been  cut, 
it  being  shown  that  that  was  the  meaning  as  usually  understood 
by  farmers  in  that  section  of  the  country. 

LAW  OF  PLACE. — A  contract  is  to  be  interpreted  according 
to  the  law  and  usage  of  the  place  where  it  is  to  be  performed,  or 
if  no  place  of  performance  is  specified,  then  according  to  the  law 
and  usage  of  the  place  where  it  is  made.  Mere  usage,  however, 
can  not  be  admitted  in  evidence  to  destroy  the  plain  meaning  of  a 
contract.  A  contract  may  be  perfectly  valid,  even  though  in  its 
terms  it  declares  things  which  are  contrary  to  the  ordinary  usage; 


INTERPRETATION,  NOVATION,  CANCELLATION.    37 

but  evidence  of  usage  is  used  as  an  instrument  of  interpretation 
only:  as  in  the  case  of  the  word  "stubble"  in  the  case  cited  above, 
the  decision  was  based  partly  on  the  usage  of  the  place  as  to  the 
meaning  of  the  word  "stubble.'' 

REPUGNANCIES. — Where  different  clauses  of  the  same  con- 
tract are  in  conflict  with  each  other,  they  must  be  reconciled,  if 
possible,  by  such  interpretation  as  will  give  some  effect  to  the  re- 
pugnant clauses.  Where,  however,  there  is  a  flat  contradiction 
between  different  parts,  that  in  handwriting  controls  printed 
parts,  and  special  statements  control  general  statements.  Written 
statements  control  oral  declarations.  Parts  purely  original  con- 
trol those  copied  from  a  printed  form.  In  cases  of  uncertainty 
which  still  exist  after  the  foregoing  rules  are  applied,  the  lan- 
guage of  the  contract  must  be  interpreted  most  strongly 
against  the  party  who  caused  the  uncertainty  to  exist.  If  A 
agreed  to  work  for  a  day,  he  writing  the  agreement  himself,  in 
case  it  was  uncertain  as  to  what  the  word  "day"  meant,  it  would 
be  construed  to  mean  the  longest  working  day  rather  than  the 
shortest. 

TIME. — If  no  time  is  specified  for  the  performance  of  an  act 
required  to  be  performed,  a  reasonable  time  is  allowed.  If  the 
act  is  in  its  nature  capable  of  being  done  immediately,  as,  for  ex- 
ample, if  it  consists  in  the  payment  of  money  only,  it  must  be 
performed  immediately  upon  the  thing  to  be  done  being  exactly 
ascertained.  The  word  "immediately"  does  not  mean  within  any 
particular  minute  or  hour,  but  as  soon  as,  with  ordinary  diligence, 
the  act  can  be  accomplished.  What  a  reasonable  time  is  depends 
upon  the  circumstances  of  each  case. 

In  one  case  where  A  agreed  to  convey  certain  lands,  his  fail- 
ure to  do  so  within  eight  years  was  held  to  be  an  unreasonable 
length  of  time,  and  the  contract  was  broken  by  reason  of  such 
failure. 

NOVATION  is  the  substitution  of  a  new  obligation  for  an 
existing  one,  and  is  made. 


38  COMMERCIAL   LAW. 


(1)  By  substituting  a  new  obligation; 

(2)  By  substituting  a  new  debtor;  or 

(3)  By  substituting  a  new  creditor. 

Novation  is  made  by  contract,  and  is  subject  to  all  the  rules 
concerning  contracts  in  general. 

CANCELLATION. — A  contract  not  in  writing  may  be  altered 
in  any  respect  by  consent  of  the  parties  in  writing  without  a  new 
consideration,  and  the  original  contract  is  cancelled  thereby  to 
the  extent  of  the  new  alteration. 

A  contract  in  writing  may  be  altered  by  a  contract  in  writing 
or  by  an  executed  oral  agreement,  and  not  otherwise;  as  for  ex-, 
ample,  if  by  a  written  contract  A  agrees  to  sell  B  a  horse  for  fifty 
dollars,  the  parties  may  alter  the  written  contract  by  writing  "one 
hundred  dollars/'  or  they  may  orally  agree  that  the  price  shall  be 
one  hundred  dollars,  and  as  soon  as  the  hundred  dollars  is  paid 
and  the  horse  delivered,  the  original  contract  is  canceled. 

Destruction  intentionally  caused  by  a  party  entitled  to  benefit 
under  the  contract,  or  with  his  consent,  extinguishes  all  the 
obligations  of  the  contract  in  his  favor,  and  in  any  case  the 
destruction  of  a  written  contract  with  the  intent  to  extinguish 
the  obligations  thereof,  extinguishes  the  contract  as  to  all  parties 
consenting  to  the  act. 


TEST  QUESTIONS. 

1.  A  railroad  company  took  a  cable  rope  from  the  manufac- 
turers with  the  understanding  that  it  was  to  be  kept  and 
paid  for  if  satisfactory.     The  company  returned  the  rope 
to  the  manufacturers.      The  manufacturers  sued    for  the 
price.     Were  they  entitled  to  recover? 

2.  A  entered  into  a  written  contract  with  B  by  which  he  was 
to  pay  $100  for  goods.     A  admitted  that  he  had  signed 
the  writing  and  knew  what  it  contained  at  the  time,  but 
stated  that  there  was  an  oral  agreement  at  the  time  that 


INTERPRETATION,    NOVATION,    CANCELLATION. 

he  was  only  to  pay  $75  for  the   goods.      In   case  of 
will  he  be  compelled  to  pay  $75  or  $100?     Give  reasons. 

3.  In  the  above  case  suppose  that  A  could  not  read  and  was 
informed  that  the  consideration  was  $75.      Would  he  be 
compelled  to  pay  the  $100? 

4.  A  agreed  to  rent  to  B  a  "spike"  team.     On  a  trial  for  dam- 
age for   refusal    to  furnish  the    team,  A  claimed    that    a 
"spike"  team  meant  two  horses  for  hauling  spikes;  B  con- 
tended that  it  meant  three  horses  for  any  purpose.     State 
different  circumstances  which  would    decide  the  case  for 
one  party  or  the  other. 


CHAPTER  VIII. 
EEMEDIES. 

DEFINITION. — In  every  contract,  as  we  have  seen,  there  are 
mutual  promises  by  the  parties  thereto.  If  all  of  these  promises 
were  at  all  times  faithfully  kept  and  performed  there  would  be 
no  damage  done  and  consequently  no  redress  required,  but  it  is 
the  common  experience  of  mankind  that  contracts  are  often 
broken.  We  have  from  the  old  common  law  the  maxim,  "There 
is  no  wrong  without  a  remedy."  Remedies  are  obtained  by  appli- 
cation to  the  Courts  by  means  of  what  is  called  a  suit  or  action  at 
law. 

SUIT  is  commenced  by  filing  a  written  statement  called  a 
complaint  in  Court,  setting  forth  the  contract,  and  that  it  has 
been  broken,  and  the  damage  claimed  by  reason  of  the  bread  i 
of  contract. 

A  summons,  or  notice,  is  then  issued  commanding  the  one  who 
has  broken  the  contract  to  appear  within  a  certain  time  named, 
and  make  answer  to  the  complaint  against  him.  After  he  does 
this,  the  trial  is  had  and  the  Court  or  jury  determines  whether 
the  contract  has  been  broken,  and  if  so  what  relief  is  proper. 

The  Order  made  by  the  Court  stating  the  relief  that  is  granted 
is  called  the  judgment,  and  this  judgment  of  the  Court  is  enforced 
by  a  Sheriff  or  Constable,  and  is  called  the  execution  of  the  judg- 
ment. Judgment  may  be  for  specific  performance,  injunction,  or 
for  damages. 

EXECUTION". — Where    the    judgment    is  for  damages,  the 

Sheriff  or  Constable  may  seize  the  real  and  personal  property  of 

the  debtor  and  sell  it.     If  there  is  any  surplus,  he  must  return 

it  to  the  debtor,  but  he  must  be  careful  to  sell  personal  property 

•>       (40) 


REMEDIES.  41 

first,  then  real  property,  and  only  so  much  as  is  necessary  to  satisfy 
the  judgment.  Execution  may  issue  any  time  within  five  years 
from  entry  of  judgment. 

EXEMPTIONS. — As  a  matter  of  public  policy,  it  would  not 
be  good  policy  to  allow  a  creditor  to  take  every  article  which  the 
debtor  owns  away  from  him  in  satisfaction  of  his  debts,  as  it 
might  effectually  prevent  him  from  earning  his  livelihood,  and 
thereby  create  a  class  of  paupers  who  would  be  a  burden  on  the 
general  public;  hence,  the  general  rule  is,  that  whatever  is  neces- 
sary for  the  actual  earning  of  a  person's  livelihood,  or  for  his 
ordinary  use,  is  exempt  from  execution.  The  following  are  illus- 
trations of  what  is  exempt:— 

(1)  Necessary  household  and  office  furniture. 

(2)  Necessary  farming  utensils;  not  exceeding  in  value  $1,000; 
also  two  work  animals,  harness  and  wagon. 

(3)  All  public  property,  such  as  jails,  court-houses  and  town 
halls. 

(4)  The  library  of  an  attorney,  the  piano  of  a  music  teacher, 
the  typewriter  of  a  stenographer,  the  horses  and  dray  of  a  dray- 
man, and  other  like  things  by  which  a  debtor  earns  his  living. 

DAMAGES. — In  case  a  party  to  a  contract  fails  to  fulfil  his 
agreements,  and  a  suit  is  brought  and  judgment  entered,  this 
judgment  usually  provides  that  he  must  pay  a  certain  sum  of 
money  as  damages  to  the  injured  party. 

In  general  the  damages  allowed  is  the  amount  which  will 
compensate  for  all  the  injury  suffered. 

DI11ECT  AND  CONSEQUENTIAL  DAMAGES.— Damage 
must  be  the  natural  and  proximate  result  of  an  act  in  order  that 
compensation  in  money  may  be  obtained.  There  are  only  two 
classes  of  cases  where  injuries  have  been  sustained  for  which  dam- 
ages may  be  allowed.  The  injury  must  be: — 

(1)  Direct;  that  is,  such  as  proceeds  immediately  from  the 
act,  or, 

(2)  Consequential;  such  as  ilows  necessarily  from  the  act:  for 
example: 


42  COMMERCIAL   LAW. 

A  killed  a  mare.  The  damage  sustained  was  direct  damage 
in  the  loss  of  the  animal.  She  had  an  unweaned  colt.  The  cost 
of  employing  other  means  to  raise  the  colt  was  consequential  dam- 
age, and  the  owner  of  the  inare  recovered  as  damages  the  value  of 
the  mare,  and  the  additional  expense  of  raising  the  colt.  The 
additional  injury  caused  by  the  colt  kicking  its  keeper  was  too 
remote  to  charge  A.  The  kicking  was  neither  the  direct  result 
of  the  killing  of  the  mare,  nor  did  it  necessarily  result  therefrom. 
The  colt  might  have  kicked  the  man  had  the  mother  lived. 

SPECULATIVE  DAMAGES.— Damages  must  always  be 
either  direct  or  consequential;  and  they  must  also  be  certain.  If 
a  man  makes  a  mere  supposition  or  speculation  that  he  has  been 
damaged,  he  can  not  recover  damages.  In  the  above  example,  the 
extra  price  which  the  colt  might  have  brought,  had  it  been  reared 
by  the  mother,  is  mere  speculation,  and  not  recoverable.  No  one 
can  tell  whether  the  colt  would  have  been  of  more  value  had  the 
mother  lived,  or  not. 

LIQUIDATED,  OB  FIXED  DAMAGES.— In  some  contracts 
it  is  found  that,  owing  to  the  nature  of  the  contract,  it  is  very 
difficult  to  say  what  amount  of  damages  will  compensate  for  a 
breach  thereof.  When  from  the  nature  of  the  case  it  would  be 
impracticable  or  extremely  difficult  to  fix  the  actual  damage  after 
it  occurs,  the  parties  may  agree  beforehand  upon  an  amount  which 
shall  be  allowed  as  damages  to  the  injured  party  in  case  the  con- 
tract is  broken.  This  agreement  is  usually  made  a  part  of  the 
contract  itself,  but  it  may  be  specified  in  a  separate  instrument. 
A  purchased  a  sailing  vessel  from  F.  F  agreed  to  deliver  the 
vessel  within  twenty  days,  and  it  was  agreed  that  if  he  did  not  he 
should  pay  $2,000  as  damages  to  A.  He  failed  to  deliver,  and  on 
suit  being  brought,  the  Court  held  that  it  was  one  of  the  cases  in 
which  it  was  extremely  difficult  or  impracticable  to  fix  the  actual 
damages,  and  therefore  allowed  the  $2,000  agreed  upon  as  dam- 
ages. In  the  ordinary  cases,  however,  where  the  damage  can  1>3 
ascertained,  fixed  damages  are  not  allowed. 


REMEDIES.  43 

EXEMPLARY  DAMAGES  are  damages  which  are  allowed 
in  addition  to  any  actual  damage  suffered  in  cases  where  there  haa 
been  wilful  injury  inflicted.  Such  damages,  however,  are  never 
allowed  for  mere  breach  of  contract,  but  only  in  cases  of  wilful  or 
malicious  injury.  Such  wilful  wrongs  are  called  torts,  and  addi- 
tional damages  by  way  of  example,  or  exemplary  damages,  are 
allowed  in  such  cases,  except  in  cases  where  a  person  by  reason  of 
being  of  unsound  mind  or  a  minor  is  not  capable  of  knowing  that 
the  act  is  wrongful.  If  a  person  commits  wrongful  injury  to 
animals,  such  as  maliciously  leaving  horses  to  starve,  or  die  from 
want  of  water,  exemplary  damages  may  be  given  in  addition  to 
damages  for  the  actual  value  of  the  horses. 

In  contracts  for  the  payment  of  money  only,  the  damage 
caused  by  the  breach  thereof  is  deemed  to  be  the  amount  due  with 
interest  thereon.  The  actual  loss  occasioned  by  the  breach  of 
such  a  contract  may  be  much  greater  than  the  amount  due  with 
interest,  but  the  law  does  not  inquire  into  consequences  which 
may  arise  beyond  the  amount  due  with  interest. 

BREACH  OF  CONTRACT  TO  DELIVER  PERSONAL 
PROPERTY. — If  the  property  has  not  been  paid  for,  the  damage 
caused  by  the  breach  of  contract  on  the  part  of  the  seller  is  the 
difference  between  the  value  of  the  property  to  the  buyer,  and 
the  price  he  has  agreed  to  pay;  as,  if  a  fruit  dealer  bought  at 
wholesale  certain  apples  for  $50  and  they  were  not  delivered,  and 
he  had  a  contract  for  their  sale  for  $75,  his  damage  caused  by  the 
non-delivery  of  the  apples  would  be  the  difference  between  $50 
and  $75,  or  $25. 

If  the  personal  property  has  been  paid  for  and  not  delivered 
the  amount  of  the  damages  is  either, 

(1)  The  value  of  the  property  at  the  time  it  should  have  been 
delivered,  with  legal  interest;  or 

(2)  The  highest  market  value  of  the  property  at  any  time  up 
to  the  time  verdict  is  given  in  a  suit  for  the  recovery  of  damages. 


44  COMMERCIAL   LAW. 

BREACH  OF  CONTRACT  TO  PAY  FOE  PERSONAL 
PROPERTY  SOLD.— Where  a  buyer  breaks  his  contract  and 
fails  to  accept  and  pay  for  personal  property  which  he  has  bought, 
the  damage  to  the  seller  is  the  amount  of  the  contract  price,  and 
the  seller  may  store  the  goods  for  him,  and  sue  him  for  the  con- 
tract price. 

BREACH  OF  CONTRACT  TO  BUY  PERSONAL  PROP- 
ERTY.— In  case  the  title  has  not  passed,  but  there  is  a  mere 
agreement  to  buy  upon  delivery,  if  the  buyer  refuses  to  accept  and 
pay  for  personal  property  the  seller  may; 

(1)  Resell    the  property  and  recover  as  damages  the    amount 
of  the  difference  between  what  he  sold  for  and  what  the  buyer 
has  agreed  to  pay  him;  or,, 

(2)  He  may  keep  the  goods  and  recover  as  damages  whatever 
profit  he  would  have  made  by  the  sale  plus  the  expenses  incurred 
in  handling  the  goods. 

EMPLOYEE  WRONGFULLY  DISCHARGED  may  recover 
damages  which  he  may  suffer  by  reason  thereof.  He  may  either 

(1)  Regard  the  contract  as  broken  and  sue  at  once  for  the 
breach,  and  may  recover  the  profits  that  would  have  been  made 
had  the  contract  been  fulfilled;  or 

(2)  Treat  the  contract  as  rescinded  and  sue  for  the  reasonable 
value  of  his  services  from  the  time  he  commenced  work  until  the 
contract  would  have  been  completed. 

In  either  case  he  must  use  ordinary  diligence  in  looking  for 
other  employment,  and  in  case  he  secures  other  employment  at 
less  wages,  his  damage  will  be  the  difference  between  what  he  does 
receive,  and  what  he  would  have  received  under  his  contract. 

It  must  be  carefully  remembered,  however,  that  such  damages 
are  only  obtainable  in  case  an  employee  is  wrongfully  discharged. 
If  he  has  been  discharged  by  reason  of  failure  to  properly  perform 
his  duties  he  has  no  remedy,  and  if  he  has  injured  his  employer 
by  reason  of  his  negligence  or  unskilful  performance  of  his  duties, 
the  employer  may  recover  damages  from  him. 

SPECIFIC  PERFORMANCE  is  the  compelling  of  n  person 


REMEDIES.  45 

to  carry  out  the  terms  of  his  contract  in  case  he  refuses  or 
neglects  to  do  so.  It  is  the  general  rule,  as  we  have  seen,  that 
where  contracts  are  broken  the  person  who  commits  the  breach 
of  contract  is  made  to  pay  damages  in  money  to  the  other  for  the 
breach  thereof,  but  there  are  some  cases  in  which  it  is  considered 
that  mere  money  damages  will  not  compensate  a  person  for  a 
breach  of  contract;  and  in  such  cases  a  judgment  will  be  given 
compelling  the  full  or  specific  performance  of  the  contract. 

As  to  the  classes  of  contracts,  the  rule  is  that  a  breach  of  con- 
tract concerning  personal  property  may  be  relieved  by  money 
damages;  while  if  a  person  agrees  to  convey  real  property  and  fails 
to  do  so  the  Court  will  compel  him  to  do  so  upon  application  by 
the  injured  party.  In  such  a  case,  however,  the  party  injured  by 
the  breach  of  contract  must  himself  perform,  or  be  compellable 
to  perform,  his  part  of  the  contract,  in  accordance  with  the  maxim. 
"He  who  seeks  equity  must  do  equity." 

A  person  who  applies  to  the  Court  for  a  judgment  for  specific 
performance  must  do  so  within  a  reasonable  time  after  the  breach 
of  contract.  In  one  case  where  six  years  had  elapsed  the  Court 
held  that  the  injured  party  had  waited  an  unreasonable  length  of 
time,  and  refused  to  compel  a  specific  performance  by  the  other. 
What  a  reasonable  time  is,  however,  depends  upon  the  circum- 
stances of  each  case. 

AN  INJUNCTION  is  a  writ  or  order  requiring  a  person  to 
refrain  from  a  particular  act.  It  sometimes  happens  that  a  person 
inflicts  injury  upon  the  property  of  another,  or  threatens  to  do  so; 
and  to  await  the  slow  process  of  an  ordinary  suit  at  law  might 
result  in  irreparable  injury  to  the  property;  therefore  when  there 
is  no  plain,  speedy  and  adequate  remedy  at  law  a  person  injured 
may  apply  to  a  Court  for  an  injunction. 

Injunction  was  held  to  be  the  proper  remedy  in  the  following 
cases: 

A  tenant  was  digging  up  fruit  trees;  an  injunction  was  granted 
to  compel  him  to  stop. 


46  COMMERCIAL    LAW. 

An  ex-sheriff  was  restrained  from  collecting  taxes,  by  injunc- 
tion. A  person  attempted  to  divert  all  the  water  from  a  miner's 
ditch.  An  injunction  was  issued  to  compel  him  to  cease. 


TEST  QUESTIONS. 

1.  Name  the  various  stages  of  an  action  for  a  debt. 

2.  A  agrees  to  build  a  ship  for  B,  and  in  case  he  fails  to  com- 
plete the  work  he  is  to  forfeit  $10,000  as  damages.     Is  that 
part  of  the  contract  valid?     Give  reasons. 

3.  A  enters  into  a  contract  with  B  for  the  purchase  of  B's 
land.     At  the  time  fixed  for  the  performance  B  refuses  to 
convey.     "What  remedy  or  remedies  has  A? 

4.  A  agreed   to    keep  certain   horses  in    pasture  at  a  certain 

price.  The  horses  died  from  lack  of  food  and  water  in 
the  pasture  field.  What  damages  may  be  recovered  by  the 
owner? 


CHAPTER   IX. 
DEFENSES— STATUTE  OF  FRAUDS. 

DEFINITION. — It  sometimes  happens  that  a  person  sues 
another  for  breach  of  contract  through  mistake,  there  having  been 
in  fact  no  breach  of  contract,  or  it  may  happen  that  the  contract 
has  been  partly  performed,  or  there  may  be  some  legal  reason  for 
not  performing  the  contract.  When  a  person  has  any  such  rea- 
sons he  may  offer  them  as  defenses  to  the  action  against  him.  A 
defense,  then,  is  a  legal  reason  given  by  the  defendant  tending  to 
show  that  there  is  no  case  against  him 

The  principal  defenses  are: — 

(1)  Statute  of  frauds; 

(2)  Statute  of  limitations; 
(S)  Performance; 

(4)  Counter  claim. 

THE  STATUTE  OF  FRAUDS  has  for  its  object  the  preven- 
tion of  fraud  in  contracts  by  requiring  certain  contracts  to  be  in 
writing.  The  statute  provides  that  the  following  contracts  are 
invalid  unless  the  same  or  some  note  or  memorandum  thereof  be 
in  writing,  and  subscribed  by  the  party  to  be  charged,  or  by  his 
agent. 

(1)  An  agreement  that  by  its  terms  is  not  to  be  performed 
within  a  year. 

(2)  A  promise  to  answer  for  the  debt,  default,  or  miscarriage 
of  another. 

(3)  An    agreement    made    upon    consideration    of     marriage 
except  mutual  promises  to  marry. 

(4)  An  agreement  for  the  sale  of  personal  property  for  a  price 
of  $200  or  over,  unless 

(47) 


48  COMMEKCIAL    LAW. 

(a)  The  buyer  accepts  or  receives  part  of  the  thing;  or, 
(6)  The  buyer  pays  at  the  time  part  of  the  price;  or 
(c)  The  sale  be  by  auction. 

(5)  An  agreement  for  leasing  real  property  for  more  than  one 
year. 

(6)  An  agreement  for  the  sale  of  real  property. 

(7)  An  agreement  employing  an  agent  to  purchase  or  sell  real 
property. 

EXPLANATION. — It  has  been  found  by  experience  that  in 
matters  of  small  consequence  people  are  likely  to  fulfil  their  con- 
tracts, and  less  dispute  consequently  arises  as  to  the  meaning  of 
?uch  contracts.  It  would  be  very  inconvenient,  moreover,  if  a 
person  were  required  to  write  out  a  contract  every  time  he  wished 
to  make  a  trifling  purchase,  so  the  law  has  particularly  specified, 
as  above  stated,  what  contracts  are  considered  important  enough 
to  reduce  to  writing,  and  by  thus  reducing  them  to  writing  the 
interpretation  is  made  reasonably  certain. 

Of  course,  the  statute  does  not  mean  by  the  word  "invalid" 
that  a  person  who  orally  enters  into  such  contracts  as  are  required 
to  be  in  writing,  is  guilty  of  any  crime,  or  that  he  will  be  crim- 
inally liable  for  his  act. 

In  so  far  as  each  party  carries  out  the  contract,  and  no  one  is 
injured,  the  statute  does  not  apply  and  the  contract  is  valid;  in 
other  words  the  statute  does  not  actually  make  the  contract  void, 
but  simply  prevents  any  party  who  may  be  injured  by  breach  of 
the  contract  from  obtaining  any  remedy  by  suit  at  law  if  the 
other  party  sets  up  the  statute  as  a  defense  for  non-performance. 

"Note  or  memorandum"  must  be  full  enough  plainly  to 
describe  the  contract  and  the  parties  thereto. 

"Subscribed"  means  written  at  the  end  of  the  instrument 
Mere  signing  of  the  name  in  or  on  some  other  part  of  the  con 
tract  will  not  do. 

"By  the  party  to  be  charged."  The  other  party  need  not  sub- 
scribe his  name.  It  is  not  necessary  to  state  the  consideration  in 
the  writing. 


DEFENSES-    STATUTE    OF   FRAUDS.  49 

"BY  ITS  TEEMS  NOT  TO  BE  PERFORMED  WITHIN  A 
YEAR." — The  words  "by  its  terms"  are  particularly  important. 
If  it  does  not  appear  by  its  terms  that  the  agreement  is  not  to  be 
performed  within  a  year  from  the  making  of  it,  the  contract  may 
be  made  orally  and  be  valid  in  all  respects.  It  is  only  when  by  its 
terms  it  expressly  states  that  it  is  not  to  be  performed  within  a  year, 
or  that  fact  otherwise  appears  by  the  terms  of  the  contract,  that 
the  contract  must  be  in  writing;  thus,  a  verbal  contract  was  entered 
into  to  deliver  saw  logs  sufficient  to  keep  a  sawmill  running  for 
two  years.  It  was  held  that  by  its  terms  the  contract  was  not  to 
be  performed  within  a  year,  and  hence  not  being  in  writing  the 
contract  was  invalid,  and  when  the  lumberman  failed  to  furnish 
the  logs,  the  owner  Q|  the  sawmill  could  not  recover  damages,  nor 
had  he  any  remedy  of  any  kind. 

If  the  contract  may  be  performed  within  a  year  it  need  not  be 
in  writing  under  any  circumstances  even  though  it  actually  takes 
longer  than  the  year  to  perform  it.  As,  if  A  agrees  to  build  a 
carriage  and  to  begin  work  immediately,  the  contract  is  binding 
although  not  in  writing,  even  though  by  A's  delay  the  carriage 
is  not  finished  within  a  year.  The  object  of  this  provision  is  to 
secure  good  evidence  of  contracts  that  will  endure  for  a  year's 
time  or  more. 

It  has  been  the  common  experience  of  man  that  the  memories 
of  people  fail  in  a  very  short  time.  Even  where  they  honestly  try 
to  state  the  exact  terms  of  a  contract  it  is  difficult  to  do  so  after 
the  lapse  of  a  year  or  more. 

"TO  ANSWER  FOR  THE  DEBT,  DEFAULT,  OR  MIS- 
CARRIAGE OF  ANOTHER."— If  A  promises  to  pay  B's  debt, 
lie  must  make  his  promise  in  writing  in  accordance  with  the  stat- 
ute of  frauds,  or  he  can  not  be  bound  by  the  contract;  but  if  A 
goes  into  a  store  with  B  and  tells  the  storekeeper  to  let  B  have 
certain  goods  and  that  he.  A,  will  pay  for  them,  this  is  a  different 
matter.  It  is  an  original  promise  by  A  himself,  and  the  debt  is 
not  B's,  but  A's,  and  he  will  be  obliged  to  pay,  even  though  he 
4 


50  COMMERCIAL   LAW. 

does  not  make  the  promise  in  writing.  This  promise  must  be 
made,  however,  to  the  creditor,  and  not  to  the  debtor. 

If  A  agrees  with  B  for  a  consideration  that  he,  A,  will  pay  B's 
debts,  B  may  compel  A  to  do  so,  even  though  the  agreement  was 
not  in  writing. 

"IN"  CONSIDERATION  OF  MARRIAGE  EXCEPT  MU- 
TUAL PROMISES  TO  MARRY/'— This  provision  has  reference 
particularly  to  what  are  known  as  marriage  settlements;  as,  where 
a  man  promises  to  deed  a  house  and  lot  to  a  woman  if  she  will 
marry  him;  or  where  a  father  promises  his  daughter  $1,000  if  she 
will  marry.  All  such  agreements  must  be  in  writing,  or  they  are 
invalid.  One  exception  is  made  of  mutual  promises.  If  ono 
promises  to  marry  another  and  does  not  fulfil  his  promise,  even 
though  it  be  an  oral  promise,  which  is  usually  the  case,  the  party 
injured  may  recover  damages. 

'  USALE'  OF  PERSONAL  PROPERTY."— if  the  price  is 

uncertain  at  the  time  the  contract  is  made,  but  subsequently 
proves  to  be  more  than  $200,  it  can  not  be  enforced,  unless  in 
\\-riting;  as,  if  a  stack  of  hay  is  sold  unmeasured  at  the  rate  of 
$5.00  per  ton,  and  afterwards  is  found  to  contain  fifty  tons,  the 
contract  is  invalid  unless  in  writing.  Whether  acceptance  of  a 
sample  will  satisfy  the  statute  depends  on  whether  the  sample 
is  a  mere  specimen,  or  whether  it  is  to  constitute  part  of  the 
thing  sold.  If  the  latter,  it  is  sufficient  to  make  valid  an  oral 
contract,  even  though  the  price  is  more  than  $200,  but  if  a  mere 
specimen,  it  is  not  considered  as  part  of  the  thing  sold. 

PART  PAYMENT  must  be  "at  the  time"  of  the  sale,  and 
'•payment"  means  actual  payment  in  money,  or  its  equivalent, 
not  a  mere  credit.  If  the  sale  is  made  by  auction,  the  auctioneer's 
memorandum  must  be  made  at  the  time  of  the  sale.  The  auc- 
tioneer's clerk  may  make  the  memorandum. 

LEASES  AND  SALES  OF  LAND.— Transactions  regarding 
land  have  always  been  deemed  important,  and,  as  we  shall  see  in 


DEFENSES STATUTE   OF    FRAUDS.  51 

a  subsequent  chapter,  instruments  affecting  the  title  to  real  prop- 
erty must  be  placed  on  record  with  the  recorder  of  the  County  iii 
which  the  land  is  situated.  Long  verbal  leases  of  land  would 
tend  to  confusion  in  titles,  and  invite  litigation.  So  in  the  sale 
of  land,  in  all  cases,  a  written  instrument  called  a  deed  must  be 
given  from  the  seller  to  the  buyer  before  there  is  any  valid  sale. 

SUBDIVISION  SEVEN,  requiring  an  agent  to  be  authorized 
in  writing,  to  buy  or  sell  real  estate,  is  in  harmony  with  the  pro- 
visions of  subdivisions  five  and  six.  If  a  principal  can  not  make 
a  valid  sale  of  real  estate  without  a  writing,  neither  should  his 
agent  be  allowed  to  do  so. 


TEST  QUESTIONS. 

1.  Discuss  the  effect  of  the  Statute  of  Frauds  upon  a  sale  by 
sample. 

2.  A  and  B  enter  into  an  agreement   for   the    sale  of   goods. 

There  is  no  evidence  of  the  contract  except  that  the  day 
after  the  conversation  A  pays  B  $50  on  account.  Suppop- 
ing  the  total  price  to  be  $500,  will  this  payment  satisfy  the 
Statute  so  as  to  dispense  with  a  writing? 


CHAPTER  X. 
DEFENSES— STATUTE  OF  LIMITATIONS. 

EXPLANATION. — It  has  been  found  by  long  experience 
that  justice  and  right  require  that  all  suits  at  law  for  breach  of 
contract  should  be  brought  within  a  reasonable  time  after  the 
right  accrues.  If  long  delays  are  had,  witnesses  may  be  dead  or 
their  memories  have  failed,  or  in  cases  of  written  documents  to 
be  used  as  evidence,  they  may  have  been  lost,  and  consequently 
great  difficulty  be  had  in  proving  the  terms  of  the  contract.  It  is 
right  that  a  person  charged  with  breach  of  contract  should  be 
afforded  an  opportunity  to  defend  himself  while  he  still  may  have 
evidence  on  hand  with  which  to  do  so.  It  would  be  unfair  to  him 
if  the  party  who  claimed  to  be  injured  were  allowed  to  wait  for 
years,  and  then  sue  him,  and  compel  him  unjustly  to  pay  money, 
or  otherwise  comply  with  the  terms  of  an  ancient  contract. 

Under  the  common  law  system  no  definite  limits  were  fixed 
within  which  acts  must  be  done,  or  contracts  enforced,  but  rnereh 
a  reasonable  time  was  allowed.  'This,  of  course,  led  to  a  great 
deal  of  litigation  to  enable  people  to  find  out  in  each  case  what  a 
reasonable  time  was;  so  that  our  modern  statutes  have  in  many 
cases  fixed  definitely  the  periods  within  which  certain  acts  must 
be  done,  or  suits  brought. 

These  statutes  are  known  under  the  general  term  of  "Statute 
of  Limitations."  "When  the  time  has  passed  within  which  an 
action  should  have  been  brought,  without  its  having  been  brought, 
the  claim  is  said  to  be  barred  by  the  "Statute  of  Limitations,"  or, 
as  it  is  more  commonly  called,  "outlawed." 

PEOVISIONS. — The  following  are  the  principal  periods  of 
(52)  ^ 


DEFENSES STATUTE    OF    LIMITATIONS.  53 

/   /*      Jj^/l*w\  jLid       I 

' 

limitation.  After  ten  years,  the  State  can  not  sue  for  the  recovery 
of  real  estate  claimed  by,  and  in  possession  of,  private  persons. 

After  five  years,  an  individual  can  not  sue  for  the  recovery  of 
real  property  claimed  by,  and  in  the  possession  of,  private 
persons. 

After  four  years,  an  action  can  not  be  brought  upon  any  con- 
tract, obligation,  or  liability  founded  upon  an  instrument  in  writ- 
ing, executed  in  this  State.  Promissory  notes  and  mortgages 
come  under  this  head ;  also  book  store  accounts. 

After  three  years,  an  action  can  not  be  maintained  for 

(1)  Trespass  upon  real  property; 

(2)  Taking,  detaining,  or  injuring  personal  property; 

(3)  Eelief  on  the  ground  of  fraud  or  mistake. 

After  two  years,  an  action  can  not  be  brought  on  oral  con- 
Bracts;  or  on  contracts  in  writing,  executed  out  of  the  State. 

After  one  year,  no  action  can  be  maintained  for  libel,  slan- 
Jer,  assault,  battery,  and  false  imprisonment. 

After  six  months,  an  action  can  not  be  maintained  against  an 
officer  to  recover  property  or  taxes  illegally  collected,  nor  against 
a  county  on  claims  which  have  been  rejected. 

In  addition  to  the  limitations  prescribed  for  the  commencement 
of  actions,  a  lease  of  farming  land  is  invalid  if  given  for  a  longer 
period  than  1 5  years,  and  a  lease  of  city  lots  if  given  for  a  longer 
period  than  99  years. 

OUTLAWED  IN  OTHEE  STATES.— Where  a  cause  of  action 
has  arisen  in  another  State  or  country,  it  is  considered  barred  in 
every  other  State,  without  regard  to  the  time  of  the  limitation; 
thus,  if  a  note  became  due  and  payable  in  Florida,  and  by  the  laws 
of  that  State  became  outlawed  in  two  months,  the  note  would 
also  be  outlawed  in  California,  even  though  the  Statutes  of  Cali- 
fornia prescribed  four  years  as  the  time  of  limitation. 

NO  LIMITATION  IN  FAVOR  OF  BANKS.— There  is  no 
limitation  to  an  action  brought  to  recover  money  or  other  prop- 
erty deposited  with  any  bank,  trust  company,  or  savings  and  loan 
society. 


£4  COMMERCIAL   LAW. 

BEGINNING  OF  THE  PERIOD.— Generally  speaking,  the 
Statute  of  Limitations  begins  to  "run"  whenever  an  action  could 
be  legally  commenced;  as,  in  case  of  a  note,  it  begins  the  day  after 
the  note  is  due.  In  case  of  a  current  account,  each  item  outlaws 
by  itself  as  it  is  due,  unless  time  is  given,  when  the  entire  account 
outlaws  from  the  end  of  the  time. 

In  mutual  accounts,,  that  is,  where  goods  are  purchased  by 
both  parties,  the  time  begins  to  run  from  the  date  of  the  last  item 
on  either  side. 

Balances  on  mutual,  current,  or  open  book  accounts,  though 
not  written  contracts,  by  special  statute,  outlaw  in  four  years. 

In  actions  on  the  ground  of  fraud  or  mistake,  the  time  begins 
to  run  from  the  time  of  the  discovery  by  the  aggrieved  party  of 
the  facts  constituting  the  fraud,  and  not  from  the  time  of  the 
commission  of  the  fraud,  or  happening  of  the  mistake. 

In  case  of  a  note  payable  on  demand,  the  Statute  begins  to  run 
from  the  date  of  the  note,  and  not  from  the  date  of  the  demand. 

DISABILITY  OF  CREDITOR.— If  a  person  who  is  entitled 
to  bring  an  action,  be  at  the  time  the  cause  of  action  accrues, 
either, 

(1)  A  minor; 

(2)  Insane; 

(3)  Imprisoned  for  a  term  less  than  life; 

such  person  is  said  to  be  under  disability,  and  the  time  during 
which  such  disability  exists  is  not  a  part  of  the  time  limited  for 
the  commencement  of  the  action ;  therefore,  in  case  of  a  note  being 
given  in  favor  of  a  minor,  it  would  not  be  outlawed  until  at  least 
four  years  after  the  minor  became  of  age,  whether  it  was  due 
before  that  time  or  not. 

It  must  be  remembered  that  the  disability  must  have  existed 
at  the  time  the  right  to  sue  accrued. 

When  the  Statute  has  commenced  to  run,  subsequent  dis- 
ability will  not  stop  it;  thus,  if  the  Statute  has  begun  to  run 
against  a  creditor  on  a  note,  and  he  becomes  insane,  and  continues 


DEFENSES STATUTE    OF    LIMITATIONS.  55 

hopelessly  insane,  the  Statute  nevertheless  will  run,  and  the  note 
will  be  outlawed  in  four  years'  time,  without  any  allowance  for 
the  disability. 

DEFENDANT  OUT  OF  THE  STATE.— If  when  the  cause 
of  action  accrues  against  a  person  he  is  out  of  the  State,  or  if  after 
the  cause  cf  action  accrues  he  goes  out  of  the  State,  all  of  the 
time  or  times  when  he  is  actually  out  of  the  State  are  to  be 
excluded  from  the  time  limited  for  the  commencement  of  the 
action:  thus,  if  a  man  leaves  the  State  after  the  cause  of  action 
accrues  on  a  note,  and  is  gone  six  months,  then  returns  and  again 
goes  for  six  months,  the  two  absences  are  to  be  added  together  and 
the  time  of  limitation  is  extended  for  the  period  of  one  year, 
hence  in  such  a  case  there  would  in  reality  be  five  years  before  the 
note  would  be  outlawed  instead  of  four. 

It  has  been  held  that  a  foreign  corporation,  such  as  an  English 
Insurance  Company  having  its  agent  in  the  State,  is  not  absent 
irom  the  State  within  the  meaning  of  the  Statute. 

NEW  PEOMISES.— At  the  Common  Law  it  was  the  rule  that 
after  a  debt  was  barred  by  the  Statute  of  Limitations,  a  new 
promise  to  pay,  whether  oral  or  written,  would  be  sufficient  to 
revne  the  debt. 

This,  has  been  changed  by  Statute  so  that  no  acknowledgment 
or  promise  is  sufficient  evidence  of  a  new  or  continuing  contract 
by  which  to  revive  the  debt,  unless  the  same  is  contained  in 
some  WTiting,  signed  by  the  party  to  be  charged  thereby,  and 
this  written  acknowledgment  or  promise  must  be  direct,  unequiv- 
ocal, and  unconditional,  and  made  to  the  creditor. 

An  admission  or  promise  to  a  stranger  is  not  sufficient,  and  in 
case  of  joint  debtors  the  promise  of  one  does  not  avail  against 
another.  This  new  promise  itself,  being  in  writing,  will  be  out- 
lawed four  years  after  the  making  of  the  promise. 

PAKT  PAYMENT  is  not  sufficient  in  itself  to  revive  a  debt 
which  has  been  barred  by  the  Statute,  unless  it  is  evidenced  by  t 
writing  signed  by  the  debtor. 


56  COMMERCIAL   LAW. 

It  is  not  sufficient  that  the  creditor  signs  a  writing  or  makes 
an  endorsement  upon  a  note,  or  otherwise  executes  a  writing 
showing  the  payment.  It  must  be  done  by  the  debtor  or  his  agent. 

IN  CASE  OF  SUIT  BIlOUGHT  after  a  claim  is  outlawed,  the 
person  who  wishes  to  rely  on  the  fact  of  its  being  outlawed,  must 
set  up  this  fact  and  prove  it  in  Court. 

When  this  is  done  the  Statute  of  Limitations  is  a  good  defense 
to  the  suit,  and  he  is  not  obliged  to  carry  out  the  contract. 


TEST  QUESTIONS. 

1.  An  account  is  contracted  February  1,  1894,  for  $100.     On 

March  1,  1898,  $50  is  paid.  May  the  payment  of  the 
remaining  $50  be  enforced? 

2.  A  note  is  dated  May  1,  1878;  payment  conditioned  one  day 

after  date.  It  is  not  delivered  till  July  15,  1879.  When 
is  it  barred  by  the  Statute? 

3.  A  man  signs  a  note  in  Stockton.  January  1,  1897,  payable 

one  year  after  date.  Six  months  after  he  signs  it  he  goes 
to  Europe  and  remains  five  years.  On  what  date  will  the 
note  be  outlawed? 

4.  A  gave  a  note  July  1,  1896;  July  1,  1897,  he  became  hope- 
lessly insane.    When  will  the  note  be  outlawed? 


CHAPTER  XI. 

DEFEN  SES— PERFORMANCE. 

DEFINITION. — Performance  is  the  carrying  out  of  the  con- 
tract in  substantial  accord  with  its  terms.  When  this  is  done, 
the  party  so  performing  has  a  perfect  defense  against  a  suit 
brought  against  him  for  non-performance.  This  defense  differs 
somewhat  from  that  of  the  Statute  of  Limitations  and  the  Statute 
of  Frauds,  in  that  while  they  are  excuses  for  non-performance, 
in  this  defense  the  defendant  simply  says  that  he  has  performed 
the  contract,  and  because  of  having  performed  it,  he  should  not 
be  compelled  to  perform  his  part  of  the  contract  a  second  time. 

MANNER  OF  PERFORMANCE.— In  order  that  a  person 
may  make  good  his  defense  of  performance,  he  must  show  that  he 
has  performed  his  part  of  the  contract  in  at  least  a  substantial 
accordance  with  its  terms. 

It  is  not  absolutely  necessary  that  he  should  comply  with 
every  minute  detail  set  forth  in  the  contract  as  to  the  manner  of 
performance,  unless  those  details  concern  material  parts. 

Even  if  the  contract  prescribes  a  certain  manner  of  perform- 
ance, a  debtor  is  excused  from  performing  in  that  manner  if  his 
creditor  gives  him  different  directions  in  regard  to  the  perform- 
ance of  his  obligation;  and  if  he  performs  the  obligation  in  accord- 
ance with  the  later  instructions  of  his  creditor,  the  obligation  is 
extinguished  by  such  performance,  even  though  the  creditor  does 
not  receive  the  benefit  of  such  performance. 

As,  if  the  agreement  is  that  the  debtor  is  to  send  certain  money 
at  a  certain  time  by  bank  draft,  and  his  creditor  instructs  him  to 
send  the  money  by  express,  the  obligation  is  performed  if  he  sends 

(57) 


58  COMMERCIAL    LAW. 

it  by  express,  even  though  the  money  be  lost  en  route.  A  part 
performance  of  an  obligation  extinguishes  the  obligation  to  the 
extent  of  the  part  performance,  if  the  contract  is  a  divisible  con- 
tract, but  a  part  performance  does  not  extinguish  the  obligation 
where  the  contract  is  indivisible;  as,  where  a  man  agrees  to  build 
a  dam  before  high  water  comes.  He  builds  part  of  the  dam  and 
abandons  the  work.  The  high  water  comes  and  destroys  the 
work  he  has  done.  The  contract  is  indivisible.  The  part  per- 
formance was  of  no  value,  and  hence  does  not  extinguish  any  part 
of  the  obligation. 

TIME  OF  PERFORMANCE.— In  most  contracts  time  is  not 
considered  as  being  of  the  essence  of  the  contract;  that  is,  that 
it  is  not  so  important  that  the  act  must  be  done  at  the  exact  time 
specified  in  order  to  make  the  performance  valid. 

Unless  a  person  can  show  that  material  damage  has  been  suf- 
fered by  reason  of  a  contract's  not  being  performed  at  a  particular 
time,  the  performance  will  be  good,  even  if  not  done  at  the  exact 
time  specified  in  the  contract. 

If  a  contract  is  to  be  performed  within  a  certain  time  after 
date,  the  day  of  the  date  is  excluded,  and  all  of  the  last  day  which 
completes  the  time  is  included. 

If  the  last  day  of  performance  or  the  particular  day  specified 
for  performance  falls  on  Sunday  or  a  holiday,  the  act  may  be  done 
on  the  next  business  day  thereafter;  as,  if  the  day  of  performance 
fell  on  Sunday  and  Monday  following  was  Washington's  birthday, 
the  next  day,  Tuesday,  would  be  allowed  for  the  performance.  If 
no  time  is  specified  for  the  performance  of  an  act  a  reasonable 
time  is  allowed.  If  the  act  is,  in  its  nature,  capable  of  being  done 
instantly — as,  for  example,  if  it  consists  in  the  payment  of  money 
only — it  must  be  performed  immediately  after  the  thing  to  be 
done  is  ascertained. 

PLACE  OF  PERFORMANCE.— When  the  agreement  speci- 
fies a  particular  place  at  which  performance  must  be  had,  the  per- 
formance should  be  had  at  that  place,  although  if  the  perform- 


DEFENSES PERFORMANCE.  59 

ance  is  accepted  at  any  other  place,  or  can  be  had  at  any  other 
place  without  material  damage  being  done,  it  will  nevertheless  be 
a  good  performance;  as,  where  a  sum  of  money  is  to  be  paid  at  a 
certain  bank,  it  should  be  paid  at  that  bank,  but  if  the  creditor 
accepts  payment  of  the  money  at  any  other  place,  he  can  not 
afterwards  complain  that  the  money  was  not  paid  at  the  bank,  for 
the  performance  has  been  had  without  any  damage  to  him. 

PAYMENT. — The  word  "payment"  is  included  in  the  term 
"performance,"  and  means  the  performance  of  a  contract  for  the 
delivery  of  money  (which  includes  any  kind  of  stamped  metal  or 
paper  authorized  by  the  government  to  circulate).  The  delivery 
of  anything  other  than  money  is  not  payment;  hence  where  a  per- 
son owes  money  and  gives  a  promissory  note  it  is  not  payment  in 
any  sense,  but  simply  an  extension  of  the  time  within  which  to 

pay- 

HOW  PAYMENT  APPLIED.— It  sometimes  happens  that  a 
debtor  owes  a  certain  creditor  different  sums  of  money  upon  dif- 
ferent contracts;  thus,  he  may  owe  a  simple  account,  a  promissory 
note,  unsecured;  and  a  promissory  note  secured  by  mortgage,  to 
the  same  man.  In  such  a  case  if  he  should  pay  his  creditor  $100 
the  question  would  arise,  Which  of  the  three  debts  should  the  hun- 
dred dollars  be  applied  upon? 

The  rule  is  as  follows: 

(1)  It  must  be  applied  to  whichever  debt  the  debtor  directs  it 
to  be  applied  upon. 

(2)  If    the   debtor  fails   to   make   such   directions   the   creditor 
may   apply   the   payment   as   he   pleases  towards   the   extinction  of 
any  obligation,  even  though  the  obligation  is  outlawed  at  the  time 
of  the  payment. 

(3)  If  neither  party  make  application  within  a  reasonable  time, 
such  payments  must  be  applied  in  the  following  order: 

I. — On  interest; 
II. — On  principal; 
III. — On  the  obligation  earliest  in  maturity; 


GO  COMMERCIAL    LAW. 

IV. — On  an  unsecured  note; 
V. — On  a  secured  note. 

EVIDENCE  01'  PAYMENT.— The  ordinary  evidence  of  the 
payment  of  a  debt  is  a  written  receipt,  signed  by  the  creditor, 
stating  in  effect  that  the  money  has  been  paid. 

This  is  good  evidence  of  payment,  but  it  is  not  always  conclu- 
sive, as  it  may  be  possible  that  a  receipt  has  been  given  by  mis- 
take or  obtained  through  fraud,  menace,  duress,  or  undue  influ- 
ence; and  a  creditor  may  show  any  of  these  facts,  if  they  be  facts. 
So  when  an  obligation  has  been  delivered  up  to  a  debtor,  such  as 
a  promissory  note  or  mortgage,  it  is  presumed  that  he  has  paid 
everything  under  it,  though,  of  course,  the  contrary  may  be 
shown;  so  in  case  a  person  has  a  receipt  for  a  later  installment  of 
money  paid,  it  is  presumed  that  he  has  paid  all  former  install- 
ments; but  in  this  case,  as  in  the  others,  it  may  be  shown  that  as 
a  matter  of  fact  he  has  not  paid  former  installments. 

GOOD  TENDER  is  the  offer  of  something  in  satisfaction  of 
an  obligation  made  in  accordance  with  the  terms  of  the  contract, 
and  with*  the  intent  to  extinguish  the  obligation. 

This,  as  a  matter  of  defense  to  a  suit,  amounts  to  the  same  as 
actual  performance.  If  a  person  can  show  that  he  has  offered  to 
perform  in  a  proper  manner,  and  the  offer  has  been  refused,  he  is 
not  to  suffer  damage  because  he  has  not  actually  performed. 

Good  tender  does  not  relieve  a  person  from  the  obligation  of 
performance,  but  it  does  relieve  him  from  the  consequences  of 
failure  of  performance.  He  must  hold  himself  ready  to  perform 
the  obligation  at  all  reasonable  times  thereafter,  unless  the  per- 
formance should,  by  lapse  of  time,  become  impossible,  as  in  case 
where  the  agreement  was  that  A  should  deliver  a  certain  horse, 
and  the  horse  died  after  the  time  tender  was  made  and  acceptance 
was  refused,  further  tender  of  performance  was  excused. 

ESSENTIALS  OF  GOOD  TENDER.— 

(1)  It  must  be  in  strict  accordance  with  the  terms  of  fhe  con- 
tract; as  in  case  the  contract  requires  gold  coin,  it  is  necessary  thaf , 


DEFENSES PERFORMANCE.  61 

gold  coin  should  be  offered  in  payment.     An  offer  of  silver  coin 
of  equal  amount  would  not  be  good  tender. 

(2)  A  tender  in  full  is  necessary.     A  tender   of   part  of   the 
amount  of  a  debt  is  of  no  effect  whatever  as  good  tender. 

(3)  Tender  must  be  made  by  the  debtor  or  his  agent.     Ten- 
der by  a  stranger  is  not  good  tender. 

(<!)  It  must  be  made  at  proper  time.  A  tender  of  a  load  of 
wool  at  11  o'clock  at  night  was  held  to  be  bad  tender,  all  ware- 
houses being  closed  at  that  hour. 

(5)  To  a  proper  person;  that  is,  to  a  creditor  or  his  agent. 

(6)  The  place,  if  no  place  is  specified  in  the  contract,  may  be 
any  place  where  the  creditor  may  be  found. 

(?)  The  offer  must  be  free  from  any  condition,  which  the 
creditor  is  not  bound  on  his  part  to  perform.  The  creditor  is 
always  bound,  however,  to  give  a  receipt  for  payment. 

In  case  of  payment  of  money,  only  such  money  as  is  authorized 
by  the  government  for  the  payment  of  debts  need  be  accepted, 
and  the  offer  of  any  other  kind  of  money  is  not  good  tender. 

EFFECT  OF  GOOD  TENDEK.— When  a  person  has  made 
a  good  tender,  and  it  is  not  accepted,  this  does  not  at  once  relieve 
him  from  the  performance  of  the  obligation  at  any  subsequent 
time,  but  it  does  relieve  him  from  the  payment  of  interest,  or 
any  additional  burdens  which  might  accumulate  after  the  tender 
was  made;  and  it  relieves  him  from  any  judgment  for  costs  or 
expenses  above  the  amount  he  has  tendered,  in  case  suit  is  brought 
against  him. 

If  he  makes  the  tender  at  the  proper  time,  and  it  is  refused,  he 
mast  still  be  ready  to  perform  his  part  of  the  contract  at  any  time, 
or,  in  other  words,  he  must  keep  his  tender  good,  and  in  case  he 
is  sued  he  must  show  in  his  defense  that  he  has  made  a  good  ten- 
der, and  has  continued  to  make  the  good  tender. 

He  is  not  obliged,  however,  to  hold  his  tender  good  forever. 
The  Statute  of  I"  inflations  will  run  against  the  claim,  whatever 
it  may  be,  and  it  will  be  outlawed  whenever  the  limitation  empires. 


62  COMMERCIAL    LAW. 

In  tender  of  money  the  offer  must  be  not  only  in  the  kind  of 
money  prescribed  by  the  contract,  but  it  must  also  be  the  exact 
amount.  ]STo  one  is  required  to  give  change.  The  matter  of 
making  change  is  only  a  matter  of  convenience,  an  accommoda- 
tion which  a  creditor  is  usually  willing  to  grant  to  his  debtor,  but 
if  the  creditor  demands  the  exact  amount,  it  is  not  a  good  tender 
to  tender  a  greater  amount  and  demand  change. 

ACCOED  AND  SATISFACTION.— Under  some  circum- 
stances, a  creditor  will  find  it  to  his  advantage  to  accept  part  pay- 
ment of  his  debt  and  give  a  receipt  in  full  rather  than  to  insist  on 
a  payment  in  full.  If  it  is  money  that  is  to  be  paid,  the  debtor 
may  not  have  any  money  and  the  creditor  may  be  willing  to 
accept  as  full  payment  something  altogether  different;  as,  a  horse. 

In  such  a  case,  an  agreement  to  accept  something  less  or  differ- 
ent from  that  specified  in  the  contract  as  full  performance,  is  called 
an  "accord,'*  and  when  the  agreement  is  carried  out,  and  the 
acceptance  is  actually  had,  this  is  called  "satisfaction;"  e.  g.,  A 
owes  B  $100;  B  agrees  to  accept  $90  in  full  payment.  This  is  an 
accord.  A  pays  the  $90,  and  gets  a  receipt  in  full.  This  is  satis- 
faction. The  transaction  would  be  in  legal  effect  the  same  if  A 
had  offered  and  B  had  accepted  a  horse  instead  of  the  $100.  It 
makes  no  difference  whether  there  has  been  a  dispute  as  to  the 
correct  amount  of  the  bill  or  not.  It  is  nevertheless  an  "accord 
and  satisfaction"  when  the  conditions  of  the  definition  are  ful- 
filled. 

The  contract  of  accord  and  satisfaction  is  an  exception  to  the 
ordinary  rule  of  contracts,  ID  that  no  new  consideration  is 
required,  and  when  satisfaction  is  Md  under  an  accord,  the  cred- 
itor can  not  afterwards  collect  the  remainder  of  the  debt. 

In  order  that  accord  and  satisfaction  may  be  used  as  a  defense 
to  a  suit  it  is,  of  course,  necessary  that  a  defendant  in  his  answer 
to  a  suit  should  show  that  the  accord  had  been  entered  into,  and 
that  satisfaction  had  been  had. 

Accord  without  satisfaction  is  not  a  bar  to  an  action.  The 
defendant  must  show  that  the  accord  has  been  executed. 


DEFENSEES PEU  FOttMAXCE.  OO 

AKBITKATION  AND  AWAliD. — Courts  have  been  insti- 
tuted as  means  of  settling  disputes  between  individuals  in  regard 
to  business  transactions,  and  Courts  are  most  frequently  resorted 
to  when  one  of  the  parties  is  unwilling  to  settle  at  all,  and  where 
the  object  is  to  compel  him  to  settle.  It  sometimes  happens,  how- 
ever, that  both  parties  are  willing  to  settle  the  matter  but  are 
unable  to  agree  as  to  the  proper  settlement,  and  yet  do  not  wish 
to  maintain  a  lawsuit.  In  such  a  case  they  may  agree  to  leave 
the  decision  of  the  case  to  third  parties,  and  agree  that  they  will 
abide  by  their  decision.  It  is  customary  for  one  to  select  an  arbi- 
trator, the  other  to  select  another,  and  the  two  arbitrators  to  select 
a  third.  The  three  thus  chosen  are  called  a  Board  of  Arbitration. 
The  Board  of  Arbitrators  will  examine  into  the  disputed  matter 
and  render  a  decision  in  favor  of  one  party  or  the  other,  and  if 
this  decision  is  proj.erly  made  on  a  full  understanding  of  the  facts, 
it  is  binding  upon  both  parties,  and  neither  one  can  afterwards 
maintain  a  suit  at  law  against  the  other  in  the  same  matter  for  an 
amount  larger  than  the  amount  allowed  by  the  Board  of  Arbitra- 
tion. The  decision  thus  given  by  the  Board  of  Arbitration  is 
called  '''a\vard.'' 

The  agreement  to  submit  to  arbitration  is  not  a  binding  agree- 
ment, however,  as  either  party  may  revoke  his  consent  to  the  arbi- 
tration at  any  time  before  the  award  is  actually  made. 

LIS  PENDENS. —  This  is  a  Latin  phrase  meaning  "a  suit 
pending.*'  It  would  be  harassing  and  vexatious  if  a  man  were 
allowed  to  bring  two  suits  against  his  debtor  upon  the  same  cause 
of  action,  in  the  same  Court,  at  the  same  time;  and  it  is  against 
the  policy  of  the  law  to  permit  a  multiplicity  of  suits;  hence  a 
person  can  not  bring  two  suits  at  the  same  time  against  the  same 
person,  upon  the  same  cause  of  action,  for  the  same  relief,  jn  the 
same  Court. 

If  all  these  essentials  are  not  present,  a  person  can  not  claim 
that  another  suit  is  pending. 

When  they  are  all  present,  the  claim  of  Us  pendens  is  a  valid 
defense  to  a  second  suit  brought  against  a  defendant. 


64  COMMERCIAL   LAW. 

Thus,  if  A  sued  B  upon  4  certain  note  for  $500,  B  could  say 
that  there  was  a  suit  pending  if  A  again  sued  on  the  same  $500 
before  the  first  suit  had  been  disposed  of,  while  it  would  be  per- 
fectly proper  for  A  to  sue  B  for  the  amount  of  $500,  and  at  the 
same  time  sue  him  for  damages  for  breach  of  a  different  contract. 

COUNTER  CLAIM. — It  sometimes  happens  that  when  a 
debtor  owes  his  creditor,  the  creditor  may  also  owe  the  debtor 
an  amount,  so  that  when  a  suit  is  brought  the  defendant  ma} 
present  his  claim  against  the  plaintiff,  and  this  counter  claim 
must  be  subtracted  from  the  original  amount  of  the  debt;  or  if  it 
is  an  amount  equal  to  the  debt  sued  for  it  will  be  a  full  defense, 
an  equal  set-off  against  the  plaintiff's  claim;  for  example,  if  A  is 
sued  by  B  on  a  claim  of  $100  for  breach  of  contract,  A,  if  he  has 
one,  may  set  up  in  his  answer  a  counter  claim  for  $50,  if  it  be  ,i 
claim  also  arising  on  contract,  but  a  claim  for  injuries  could  not 
be  set  up  as  a  counter  claim  to  a  claim  arising  upon  contract;  and 
the  claim  must  exist  in  favor  of  the  defendant  against  the 
plaintiff. 

A  claim  set  up  by  a  third  party  is  not  good  as  a  counter  claim, 
neither  can  a  claim  Avhich  is  barred  by  the  Statute  of  Limitations 
be  set  up  as  a  counter  claim. 

If  the  defendant  fails  to  set  up  a  counter  claim  in  his  answer, 
he  can  not  afterwards  bring  a  separate  suit  for  the  amount. 

The  reason  of  this  doctrine  of  counter  claim  is  to  prevent  a 
multiplicity  of  suits  by  compelling  parties  to  test  the  validity  of 
their  claims  in  a  single  action. 


TEST  QUESTIONS. 

1.  A  contracts  to  build  a  large  court-house  in  a  day.     li  he 
answerable  in  damages  for  failure  to  fulfil  his  contract? 


DEFENSES PERFORMANCE,  65 

2.  A  agreed  to  pay  a  debt  in  salt  to  be  packed  in  barrels,  to  be 

furnished  by  the  creditor.  The  creditor  did  not  furnish 
the  barrels.  Would  that  excuse  A  from  delivering  the 
salt? 

3.  Distinguish  between  '"legal"  tender  and  "good"  tender. 

4.  A  owes  B  $100,  but  is  unable   to  pay  it.     He   offers  B  a 
wagon  in  satisfaction  of  the  debt,  which  B  accepts.     What 
is  the  legal  term  for  the  transaction? 


CHAPTER  XII. 
NEGOTIABLE  PAPER, 

NEGOTIABLE  PAPER  can  not  be  well  explained  in  a  single 
brief  definition.  It  has  been  used  as  a  medium  of  exchange  and 
as  evidence  of  debt  for  many  hundreds  of  years.  It  is  an  excep- 
tion to  the  general  rule  of  contracts  in  that  its  collection  may  be 
enforced  by  an  innocent  holder,  even  where  fraud  has  been  prac- 
tised in  obtaining  it  originally;  and  it  also  protects  an  innocent 
holder  against  other  like  defenses.  The  chief  difference  between 
negotiable  paper  and  ordinary  written  contracts  is  that  negoti- 
able paper  has  the  function  of  passing  from  hand  to  hand,  as 
money,  and  can  be  collected  by  an  innocent  holder  for  value, 
while  mere  assignable  paper  is  charged  with  all  equities  between 
the  original  parties. 

It  must  be  thoroughly  understood  before  we  can  fully  under- 
stand what  a  negotiable  instrument  is,  that  it  is  the  rule  of  con- 
tracts that  certain  contracts  can  not  be  transferred  from  one  to 
another,  and  even  when  written  contracts  are  of  such  a  nature 
that  they  may  be  transferred  from  one  person  to  another  gener- 
ally, still  the  person  who  accepts  the  transfer  from  a  person  who 
has  not  a  good  title  himself,  does  not  get  any  better  title  than  the 
seller  had. 

Suppose  that  A  had  stolen  a  horse;  he,  of  course,  has  no  good 
title  to  the  horse;  he  sells  the  horse  to  B.  No  matter  how  much 
B  may  have  paid  for  the  horse,  nor  how  innocent  of  wrongdoing 
he  may  have  been,  he  gets  no  good  title  to  the  horse,  the  thief 
having  none. 

In  the  case  of  negotiable  paper,  however,  if  A  had  stolen  a 
(66) 


NEGOTIABLE    PAPER.  67 

negotiable  note  instead  of  the  horse,  and  sold  it  to  B,  B.  being  an 
innocent  purchaser,  before  maturity  of  the  note,  B  then  would 
have  had  a  perfectly  good  title  to  the  note,  and  could  collect  it 
from  the  maker. 

This  distinction  wift  be  fully  discussed  later. 

THE  ESSENTIALS  of  every  negotiable  instrument  are: 

(1)  In  writing: 

(2)  An  unconditional  promise  or  request; 

(3)  Negotiable  in  form; 

(4)  Payable  in  money  only; 

(5)  For  a  definite  sum  payable  generally; 

(6)  To  an  ascertained  and  designated  payee; 

(7)  Time  for  payment  must  be  certain; 

(8)  Properly  signed. 

It  must  be  carefully  borne  in  mind  that  the  above  are  abso- 
lutely essential  to  negotiable  paper.  Any  paper  which  lacks  any 
of  these  elements  is  not  a  negotiable  instrument. 

IN  WEITING  includes  writing  in  script,  with  pen  or  pencil, 
printing,  typewriting,  or  any  method  of  placing  thoughts  upop 
an  impressible  substance;  or  it  may  be  partly  in  handwriting 
partly  printed,  or  partly  typewritten.  The  rule  is  the  same  ifc 
this  regard  as  in  ordinary  contracts. 

SIGNATUEE. — A  signature  is  usually  and  properly  the  name 
of  the  person  who  executes  the  instrument,  written  by  himself  at 
the  bottom  of  the  instrument,  with  the  intention  of  signing  it, 
but  anything  written  anywhere  on  a  negotiable  instrument  may 
be  proved  as  a  signature.  A  signature  stamped  upon  a  note  with 
a  rubber  stamp  has  been  held  good,  and  even  in  one  case  where  a 
person  wrote  the  figures  "128''  on  the  back  of  a  note,  pretending 
to  the  payee,  who  could  not  read,  that  it  was  his  proper  signa- 
ture, the  Court  held  that  the  figures  so  written  were  the  signature 
of  the  person  making  them. 

NEGOTIABLE  IN  FOEM.— The  words  "to  order"  or  "to 
bearer"  are  the  customary  words  showing  negotiability.  They 


68  COMMERCIAL    LAW. 

indicate  that  it  is  permitted  to  transfer  the  note  from  one  person 
to  another.  These  words,  or  some  equivalent  words,  such  as  "pay 
to  any  one,"  or  "pay  to  myself  or  order,"  renders  an  instrument 
negotiable  in  form.  Without  some  such  words  the  instrument  is 
not  negotiable. 

Where  a  person  makes  a  note  payable  to  an  obviously  fictitious 
payee,  such  as  "pay  to  Robinsorr  Crusoe,"  it  is  equivalent  to  "pay 
to  bearer." 

PAYABLE  IN  MONEY  ONLY.— Money  is  the  standard  by 
which  we  measure  the  value  of  all  other  articles,  and  being  a 
standard  it  is  presumed  to  be  an  invariable  standard;  that  is  to 
say,  $100  to-day  is  presumed  to  be  worth  just  $100  at  any  future 
time;  hence  the  certainty  of  receiving  the  amount  stipulated  for 
by  a  note  in  passing  from  hand  to  hand  is  only  obtained  by  mak- 
ing it  payable  in  money  only. 

If  it  were  payable  in  wheat,  the  price  of  which  is  constantly 
fluctuating,  no  one  but  a  mere  speculator  would  care  to  take  such 
an  instrument  to  hold  for  any  certain  time.  Money  therefore 
being  the  only  convenient  imperishable  standard  measure  of 
values,  is  the  only  thing  which  can  serve  as  a  basis  for  commercial 
paper. 

AN  UNCONDITIONAL  PROMISE  OR  REQUEST.— If  the 
promise  made  is  a  conditional  one,  it  would,  of  course,  render  the 
payment  uncertain,  and  thus  be  open  to  the  same  objection  as 
would  the  instrument  if  made  payable  in  commodities  instead  of 
money;  thus  a  promise  to  pay  "if  a  sale  be  made  in  twelve 
months,"  or  a  promise  to  pay  "when  convenient,"  renders  the 
paper  non-negotiable. 

A  DEFINITE  SUM. — A  promise  to  pay  "a  reasonable  attor- 
ney's fee,"  is  uncertain,  and  renders  a  note  not  negotiable,  while 
a  promise  to  pay  "$50  attorney's  fee"  does  not  affect  negotiability. 

The  law  has  drawn  some  fine  distinctions,  however,  in  these 
matters,  and  it  has  been  held  that  "payable  with  exchange,"  does 
not  affect  negotiability,  because  exchange  can  always  be  deter- 
mined without  difficulty. 


NEGOTIABLE   PAPER.  69 

This  is  under  the  maxim,  "That  is  certain  which  can  be  made 
certain." 

PAYABLE  GENERALLY,  means  payable  out  of  general 
funds,  and  not  out  of  specific  funds,  as  "payable  out  of  funds  now 
on  deposit  in  the  Farmers  Bank"  would  render  the  note  not 
negotiable  as  being  out  of  a  specific  fund.  No  one  could  tell  at 
the  time  of  receiving  the  note  whether  the  money  was  still  on 
deposit  in  the  Farmers  Bank. 

ASCERTAINED  AND  DESIGNATED  PAYEE.— The  fol- 
lowing designations  have  been  held  sufficient, — "Pay  to  bills  pay- 
able" equals  "to  bearer,"  "Pay  to  trustees  acting  under  the  will  of 
A/'  "Pay  to  A  or  his  heirs,"  "Pay  to  John  Doe,"  equals,  "Pay  to 
bearer,"  "Pay  to  the  now  secretary  of  a  certain  corporation,"  it 
being  held  that  in  all  of  the  above  cases  that  while  the  designa- 
tion made  does  not  specify  definitely  a  certain  person,  yet  the 
designation  is  sufficiently  accurate  so  that  the  payee  may  be 
found,  and  under  the  maxim,  "That  is  certain  which  can  be  made 
certain,"  the  designations  have  been  held  good. 

Where  a  note  was  made  payable  "to  the  secretary"  of  a  certain 
corporation,  it  was  held  not  to  be  sufficiently  certain  as  a  designa- 
tion of  the  person,  as  the  corporation  might  change  its  secretary 
at  any  time. 

If  no  payee  be  named  at  all  the  instrument  is  mere  waste 
paper:  as  for  example,  "Pay  on  the  within  $750." 

TIME  CERTAIN. — A  negotiable  instrument  may  be  with  or 
without  date,  with  or  without  designation  of  the  time  or  place  of 
payment,  but  if  it  does  not  specify  the  time  of  payment,  it  is  pay- 
able immediately,  and  when  it  does  specify  a  time,  it  is  absolutely 
necessary  that  the  time  specified  should  be  certain  or  be  capable 
of  being  made  certain;  as,  if  payable  on  demand,  or  at  sight,  the 
time  can  be  made  certain. 

An  instrument  payable  "when  I  am  of  age,"  is  uncertain,  at 
there  is  no  certainty  of-  the  maker's  reaching  his  majority. 

If  a  negotiable  instrument  falls  due  on  Sunday,  or  other  holi 


70  COMMERCIAL    LAW. 

day,  it  is  payable  on  the  next  business  day  thereafter,  the  time 
being  extended  by  reason  of  the  holiday. 

Days  of  grace  are  three  days  which  were  allowed  to  a  debtor 
for  payment  of  his  obligation  after  the  time  of  its  maturity. 

These  days  of  grace  are  not  now  allowed. 

GENERALLY. — The  amount  stated  in  negotiable  instru- 
ments should  be  written  both  in  words  and  figures.  Where  there 
is  a  difference  between  the  words  and  figures,  the  amount  written 
in  words  controls. 

A  negotiable  instrument  may  contain  a  pledge  of  collateral 
security  with  authority  to  dispose  thereof,  but  it  must  not  contain 
any  other  contract  further  than  this. 

A  due  bill,  such  as  is  often  given  as  an  acknowledgment  of 
a  debt,  is  not  in  any  sense  a  negotiable  instrument,  being  a  mere 
acknowledgment  that  money  is  due,  and  not  being  a  promise  of 
payment. 

The  words  ''for  value  received,"  often  seen  in  a  negotiable 
instrument,  are  useless.  The  law  presumes  that  a  written  instru- 
ment has  been  given  for  value.  These  presumptions  may,  of 
course,  be  rebutted,  and  this  would  be  so  whether  the  words  "for 
value  receded"  were  inserted  or  not. 

There  are  six  different  classes  of  negotiable  instruments,  viz.: 

(1)  Bills  of  Exchange; 

(2)  Promissory  Notes; 

(3)  Bank  Notes; 

(4)  Checks; 

(5)  Bonds;  and 

(6)  Certificates  of  Deposit. 

FRAUD,  MISTAKE,  DURESS.— If  a  person  procures 
another  to  sign  a  negotiable  instrument  through  either  fraud, 
mistake,  or  duress,  it  can  not  be  collected  by  the  person  committing 
such  fraud,  or  guilty  of  such  duress,  or  participating  in  the  mis- 
take; but  should  such  person  sell  the  instrument  before  maturity 
to  an  innocent  purchaser  in  the  usual  course  of  business,  who 


NEGOTIABLE  PAPER  71 

paid  value  for  it,  that  person  would  have  a  right  to  collect  the 
note  from  the  maker,  notwithstanding  such  irregularity  in  the 
making  of  the  instrument.  So,  also,  as  before  explained,  if  an 
owner  loses  a  negotiable  instrument,  the  finder  has  no  title  and 
can  not  collect  it  from  the  maker,  but  if  the  finder  sells  it  to  an 
innocent  purchaser  before  maturity,  that  purchaser  has  an 
absolute  right  to  collect  from  the  maker. 

This  is  the  distinguishing  characteristic  of  the  contract 
entered  into  by  one  who  signs  a  negotiable  instrument,  and 
wherein  such,  contracts  differ  from  all  other  contracts. 

Of  course,  a  person  whose  name  has  been  forged  to  a  negoti- 
able paper,  can  not  be  compelled  to  pay  it  no  matter  who  holds  it, 
or  how  innocent  the  holder  may  be  of  any  wrongdoing,  because 
he  has  not  signed  the  instrument  and  it  is  not  his  instrument. 


TEST  QUESTIONS. 

1.  Is  the  following  negotiable?     Give  reasons. 

December  1,  1896. 

On  demand  I  promise  to  pay  to  K.  S.  Cox  One  hun- 
dred ($100)  dollars  with  interest  at  Ten  (10)  per  cent  per 
annum. 

R.  Boyd. 

2.  A  made  out  a  note  payable  "to  bearer"  and  left  it  lying  on 
his  desk.     His  clerk  stole  the  note  and  sold  it  to  B,  who 
did  not  know  it  to  be  stolen.     Can  B  compel  A  to  pay  the 
note  at  maturity?     Give  reasons. 

3.  Suppose  in  the  above  case  A  had  signed  the  note,  but 
left  the  amount  blank.     Can  B  compel  A  to  pay  it  at 
maturity? 


CHAPTER  XIII. 
PKOMISSOKY  NOTES. 

DEFINITION. — A  Promissory  Note  is  an  unconditional 
promise  in  writing  by  a  person  to  pay  a  certain  sum  of  money, 
generally,  ''to  bearer/'  or  lito  order/'  of  some  one  named  therein, 
at  a  specified  time. 

A  promissory  note  is  merely  given  as  evidence  of  a  debt.  In 
legal  effect  it  is  not  a  debt  in  itself,  and  when  we  say  a  person 
owes  another  a  note,  in  strictness  we  mean  that  he  owes  a  sum  oi 
money  and  that  the  debt  is  evidenced  by  the  note. 

It  is  in  that  respect  merely  a  means  of  proof  that  one  man 
owes  another  money,  but  it  is  also  more  than  this  in  that  under 
certain  rules  and  conditions  governing  negotiable  paper,  a  prom- 
issory note  may  circulate  .s  money  and  may  have  a  certain  value 
in  the  markets  of  the  business  world. 

If  no  time  is  specified  for  the  payment  of  a  note,  it  is  due  at 
once.  If  no  place  is  specified  for  the  payment  of  a  note,  it  is  pay- 
able at  the  place  of  residence  or  business  of  the  maker,  or  at  any 
place  where  he  may  be  found. 

FORM. — In  regard  to  the  form  of  promissory  notes,  it  is  pos- 
sible to  have  a  great  variety.  One  form  is  as  good  as  another,  so 
far  as  negotiability  is  concerned,  provided  it  contains  all  the  ele- 
ments required  as  specified  under  the  general  head  of  "Negotiable 
Paper." 

The  ordinary  form  is  as  follows: — 
$100.00 

Stockton,  Cal.,  Jan.  2,  1898. 

Six  (6)  months  after  date  I  promise  to  pay  J.  Boyd,  or  ordei 
One  hundred  ($100.00)  Dollars. 

M.  Meyers. 
(72) 


PROMISSORY    NOTES.  73 

In  addition,  there  may  be  inserted  in  the  above  outline  any  or 
all  of  the  following  clauses  after  the  word  "Dollars;"  "together 
with  interest  at  the  rate  of  six  (6)  per  cent  per  annum,  payable 
semiannually,  and  if  not  so  paid  when  due  to  be  added  to  the 
principal  and  become  a  part  thereof,  and  bear  interest  at  the  same 
rate;"  also,  "I  agree  to  pay  in  case  suit  or  action  is  instituted  to 
collect  this  note,  or  any  part  thereof,  the  sum  of  Twenty  ($20) 
Dollars  as  attorney's  fee  in  such  suit  or  action;"  "and  further,  I 
herewith  pledge  my  gold  watch,  No.  7421,  as  security  for  the  pay- 
ment of  this  note,  and  hereby  authorize  J.  Boyd  to  dispose  of 
said  watch  and  apply  the  proceeds  to  the  payment  of  this  note, 
in  case  I  fail  to  pay  said  note  at  its  maturity." 

If  two  persons  wish  to  make  a  note  so  that  both  will  be  liable 
to  pay  it,  they  usually  write  "WE  promise  to  pay,  etc.,"  in  which 
case  it  is  called  a  joint  note;  or  it  may  read,  "We  or  either  of  us 
promise  to  pay,  etc.,"  in  which  case  it  is  called  a  joint  and  several 
note. 

In  either  case,  however,  the  makers  are  individually  and 
jointly  liable  to  pay  the  full  amount  of  the  note. 

The  note  may  provide  for  the  payment  in  installments,  and 
for  any  rate  of  interest,  payable  at  any  specified  times.  It  may 
be  payable  on  demand,  or  at  a  certain  date,  or  after  a  certain  date. 
It  may  be  written  and  signed  on  paper  or  any  substitute,  in  any 
language,  in  pencil  or  in  ink. 

PAETIES. — The  original  parties  to  a  note  are  termed  the 
maker,  the  person  whose  name  is  signed  as  promisor,  and  the 
payee,  the  person  to  whom  the  promise  is  given. 

If  the  payee  writes  his  name  on  the  back  of  the  instrument 
with  the  intent  to  transfer  it  to  a  third  party,  he  is  then  called 
an  endorser,  and  the  person  to  whom  he  transfers  it  is  an  endorsee, 
and  in  like  manner  when  this  endorsee  transfers  it  and  writes  his 
name  on  the  back  thereof,  he  becomes  an  endorser,  and  the  per- 
son to  whom  he  transfers  the  note,  the  endorsee,  and  so  on  as 
often  as  it  is  transferred. 


74  COMMERCIAL    LAW. 

NEGOTIABILITY. — It  must  be  carefully  remembered  and 
thoroughly  understood  that  in  order  to  be  negotiable,  a  note  must 
contain  all  the  elements  required  to  constitue  a  negotiable  instru- 
ment. 

A  person  may  give  a  written  contract  for  the  payment  of 
money,  and  while  it  may  be  in  form  somewhat  like  a  promissory 
note,  if  it  lacks  any  one  of  the  essentials  it  is  not  a  negotiable 
instrument:  hence  the  utmost  care  must  be  taken  not  to  confuse 
instruments  which  are  often  passed  as  promissory  notes  with 
negotiable  instruments  proper;  and  it  is  important  to  remember 
that  while  a  mere  written  contract  for  the  payment  of  money  can 
be  transferred  by  endorsement,  and  may  pass  from  one  hand  to 
another,  it  is  nevertheless  a  mere  written  contract,  and  a  holder 
gets  no  more  rights  under  it  than  he  does  under  any  ordinary  con- 
tract, and  he  accepts  it  subject  to  any  defenses  which  may  be 
made  between  the  original  parties. 

CONSIDEBATION.— As  we  have  seen,  it  is  one  of  the  rules 
of  contracts  that  every  contract  must  have  a  sufficient  considera- 
tion, and  this  is  also  the  rule  in  negotiable  instruments,  so  far  as 
the  original  parties  are  concerned;  but  even  if  A  signs  a  note  with- 
out any  consideration,  and  an  innocent  holder,  for  value,  before 
maturity,  presents  it  for  payment  at  maturity,  A  can  not  refuse 
to  pay  on  the  ground  of  want  of  consideration,  it  being  the  pecul- 
iar characteristic  of  negotiable  paper  that  an  innocent  holder 
must  be  protected. 

Therefore,  so  far  as  innocent  holders  are  concerned,  promis- 
sory notes  are  an  exception  to  the  rule  that  a  consideration  is 
required. 

ACCOMMODATION  NOTE.— A  wishes  to  borrow  money, 
but  has  no  security  to  offer.  B  is  a  friend  of  A,  who  has  no 
money,  but  has  property.  He  signs  a  note  payable  to  A,  which  A 
takes  to  the  bank  and  borrows  money  upon.  A,  of  course,  expects 
to  pay  the  note  at  maturity,  but  if  he  does  not,  the  bank  can 
compel  B  to  pay  the  note,  notwithstanding  the  fact  that  it  was 
given  without  consideration.  All  of  the  parties  knew  that  the 


PROMISSORY    NOTES.  75 

note  was  given  without  consideration,  and  for  the  purpose  speci- 
fied. Such  a  note  is  called  an  Accommodation  Note,  and  by 
the  laws  of  business,  does  not  require  consideration.  A,  how- 
ever, should  he  play  false  to  his  friend,  could  not  collect  the 
money  on  the  note  from  B,  though  the  bank  could. 

Of  course,  in  an  accommodation  note  it  is  not  necessary  that 
any  purchaser  be  innocent  in  order  that  he  may  collect  from  the 
maker.  In  fact,  he  usually  knows  that  no  consideration  has 
passed. 

BONA  FIDE  HOLDER. — A  person  who  receives  without 
notice  of  irregularities,  a  negotiable  promissory  note,  in  the  usual 
course  of  business,  for  value,  before  maturity,  is  called  a  bona- 
fide  holder,  and  such  a  person  has  an  absolute  right  to  collect  the 
amount  due  on  the  note  at  maturity  from  the  maker;  but  if  such 
a  holder  sells  the  note,  and  afterwards  it  is  given  back  to  him, 
he  does  not  thereby  retake  the  absolute  right  of  collection,  but 
takes  it  as  a  gift  subject  to  all  equities  and  defenses  between  the 
original  parties;  so  a  finder  or  a  thief  can  not  collect  a  note,  but 
his  bona-fide  endorsee  may  collect  it.  An  equitable  defense  is  one 
which  does  not  appear  on  the  face  of  the  note,  and  which  does 
not  destroy  its  negotiability  as  fraud,  force,  theft,  incapacity,  pay- 
ment; and  even  of  these  defenses,  a  maker  can  only  avail  himself 
when  they  are  between  him  and  his  payee. 

FORGEEY  may  be  committed  either  by  signing  another's 
name  to  a  note,  or  by  a  material  alteration  in  the  note. 

No  one,  as  we  have  before  observed,  acquires  any  rights  under 
a  forged  name,  neither  does  he  acquire  any  rights  where  an  alter- 
ation has  been,  made,  unless  the  alteration  has  been  made  possible 
through  the  negligence  of  the  m&ker;  as,  where  he  writes  in  lead- 
pencil,  or  leaves  blanks  which  may  be  easily  filled;  but  in  any 
event  the  alteration  must  be  material. 

The  following  are  material  alterations: 

(1)  Change  of  date  of  note; 

(2)  Change  in  time  of  payment; 


76  COMMERCIAL    LAW. 

(3)  Change  in  amount  or  interest; 

(4)  Change  from  "gold"  to  "silver"  or  "pounds"  to  "dollars;" 

(5)  Change  in  parties; 

(6)  Change  in  liability  of  parties;  as  where  a  maker's  name  is 
changed  so  as  to  make  him  liable  only  as  surety; 

(7)  Change  in  place  of  payment. 

BANK  BILLS  are  promissory  notes  issued  by  a  bank.  A  pri- 
vate bank  has  no  authority  to  issue  notes  to  circulate  as  money. 

National  banks,  however,  are  allowed  to  issue  notes  secured  by 
deposit  of  Government  Bonds  in  the  United  States  Treasury, 
and  these  notes  circulate  as  money  without  the  necessity  of 
endorsement,  being  made  payable  "to  bearer,"  and  being  practi- 
cally guaranteed  by  the  United  States  Government. 

Such  notes  are  in  a  sense  negotiable  after  having  been  paid  by 
the  maker,  as  they  can  be  immediately  passed  out  again  as  money, 
and  preserve  their  negotiability  when  thus  sent  forth. 

BONDS. — A  Bond  is  in  legal  effect  identical  with  a  promis- 
sory note;  in  fact,  it  is  a  promise  to  pay  money,  usually  of  large 
denominations,  and  is  a  very  formal  document,  having  attached 
to  it  separate  promises  called  coupons,  to  pay  the  interest  on  the 
Bond. 

Bonds  are  most  frequently  issued  by  some  branch  of  the  gov- 
ernmental authority,  state,  county,  district,  or  nation,  and  their 
payment  is  in  such  case  provided  for  by  taxation. 

They  are  signed  by  the  executive  officers  of  the  governing 
body  of  the  municipality  which  issues  them,  and  are  negotiable  to 
the  same  extent  and  for  the  same  purpose  as  an  ordinary  promis- 
sory note. 


TEST  QUESTIONS. 

1.  Is  the  following  negotiable?     Give  reasons. 

I    promise   to    pay  to    S.  Brown,  or   order,  within  six 
months  from  date,  the  sum  of  Fifty  ($50.00)  Dollars,  and 


PROMISSORY   NOTES.  77 

in  case   suit  is  brought   for  the   collection  of  this   note  I 
promise  to  pay  a  reasonable  attorney's  fee. 

J.  Gould. 

2.  A  is  a  merchant;    B  comes  to  him   after   banking   hours; 
shows  him  a  note  for  $100,  apparently  signed  by  a  respon- 
sible party,  due  thirty  days  hence;    says   he  is  in   urgent 
need  of  cash  at  once  and  will  take  $50  for  the  note.     A 
buys  the  note  from  him  for  $50  and  afterwards  learns  that 
the  signature  has  been  forged.    What  remedy,  if  any,  has  A? 

3.  Suppose  in  the  above  case  the  signature  was  genuine,  but 
had  been  obtained  by  B  through  fraud.     Could  A  collect 
the  note  from  the  maker?     Give  reasons. 

4.  A  forger  has  "raised"  a  note  from  $40  to  $140.     Discuss 
the  rights  of  collection  by  A,  who  is  a  subsequent  holder. 


CHAPTER  XIV. 

BILLS  OF  EXCHANGE. 

EXPLANATION. — In  the  early  days  of  commercial  activity 
it  was  found  inconvenient  and  unsafe  for  persons  doing  business 
at  a  distance  to  send  the  actual  coin  from  one  place  to  another, 
and  there  was  invented  and  brought  into  use  what  are  known  as 
Bills  of  Exchange. 

Suppose  A  in  San  Francisco  transacts  business  with  B  in  Ne\v 
York.  A  owes  B  $1,000.  Instead  of  sending  the  coin  he  goes  to 
the  San  Francisco  Bank,  pays  in  his  thousand  dollars,  and  gets  a 
Bill  of  Exchange  or  draft  drawn  in  favor  of  B  against  the  New 
York  Bank,  and  sends  it  by  mail  to  B. 

On  receipt  of  this  Bill  of  Exchange  B  goes  to  the  New  York 
Bank,  endorses  the  bill,  and  is  paid  a  thousand  dollars.  In  eaca 
case  the  parties  pay  to  the  bank  a  small  amount  as  compensation. 

B  or  some  other  man  in  New  York  wishes  to  send  money  to 
pay  a  debt  in  San  Francisco.  He  goes  to  the  New  York  Bank,, 
pays  his  money,  receives  a  draft,  sends  it  to  San  Francisco,  and 
his  creditor  gets  his  money  from  the  San  Francisco  Bank. 

In  this  way  the  New  York  and  San  Francisco  Banks  keep 
even  or  nearly  so  on  the  amount  of  money  owing  the  one  to  the 
other. 

If  at  any  time  the  balance  in  favor  of  the  one  or  the  other 
gets  too  large,  and  there  seems  no  prospect  of  getting  even  other" 
wise  than  by  sending  the  coin,  the  balance  is  shipped  in  the  actual 
coin  across  the  continent.  This,  however,  rarely  or  never  occurs. 

These  Bills  of  Exchange,  or  drafts,  as  they  are  usually  called; 
if  drawn  between  parties  in  the  same  state  or  country,  may  be 
(78) 


BILLS   OF   EXCHANGE.  79 

endorsed  and  passed  from  hand  to  hand  as  money  and  are  subject 
to  all  the  rules  concerning  promissory  notes  and  negotiable  paper 
in  general,  and  being  issued  usually  by  banks  generally  have  a 
higher  commercial  value  than  promissory  notes. 

DEFINITION. — A  bill  of  exchange  is  an  unconditional  order 
or  request  in  writing  by  one  person  to  another  directing  the  pay- 
ment "to  order"  of  a  person  named  therein,  or  "to  bearer/'  of  a 
certain  sum  of  money,  generally  at  a  certain  time. 

The  following  is  the  ordinary  form  of  a  Bill. 

THE  FABMEKS'  BANK. 

No.  2140.  Stockton,  Cal.,  Jan.  3d,  1898. 

At  sight  pay  to  the  order  of  Thomas  Sawyer  Five  Hundred 
($500.00)  Dollars. 

M.  TWAIN, 
To  First  National  Bank,  Cashier. 

Boston,  Mass. 
wr        SUix 

FOKEIGN  BILLS.— A  Foreign  Bill  is  one  which  is  drawn  in 
one  country  to  be  paid  in  another,  or  in  one  state  to  be  paid  in 
another.  On  account  of  the  liability  or  possibility  of  a  bill's 
being  lost  in  transmission,  it  has  been  customary  to  draw  the  bill 
in  duplicate  or  triplicate,  and  send  the  copies  by  different  routes, 
especially  when  between  different  countries  where  mails  are  car- 
ried by  ships;  as  between  different  states,  bills  are  now  seldom 
drawn  even  in  duplicate. 

A  creditor,  however,  may  demand,  as  a  matter  of  right,  under 
the  law,  that  his  debtor  shall  execute  the  bill  of  exchange  in  trip- 
licate, each  copy  stating  the  existence  of  the  others,  and  all  form- 
ing one  set. 

INLAND  BILL. — The  Inland  Bill  is  almost  universally  used 
as  a  means  of  paying  debts  between  people  in  different  parts  of 
the  same  state  or  country.  It  is  never  drawn  in  sets.  An  Inland 
Bill  is  nniversallv  known  as  a  draft. 


80  COMMERCIAL   LAW. 

PARTIES. — By  examining  the  form  above  shown,  it  will  be 
seen  that  there  are  three  original  parties.  The  one  who  signs  the 
draft  M.  Twain,  is  called  the  Drawer.  The  one  to  whom  it  is 
addressed,  The  First  National  Bank,  Boston,  Mass.,  and  who  is 
to  pay  the  draft,  is  called  the  Drawee,  and  the  one  to  whom  it  is 
made  payable,  Thomas  Sawyer,  is  called  the  Payee. 

Sometimes  a  person  wishes  to  visit  a  distant  city  and  not  carry 
money  on  his  person.  He  draws  a  draft  in  favor  of  himself.  In 
such  case  he  is  both  drawer  and  payee. 

The  subsequent  parties  are  endorsees  and  endorsers,  as  in  the 
case  of  promissory  notes,  and  there  may  of  course  be  any  number 
of  them. 

TIME  OF  PAYMENT.— A  draft  such  as  the  above  is  called 
a  Sight  draft,  and  means  that  it  is  to  be  paid  as  soon  as  the  drawee 
sees  it,  or  when  it  is  presented  to  him  for  payment. 

.  A  draft  payable  "on  demand"  is  practically  a  sight  draft,  and 
due  upon  presentation.  A  draft  may  be  drawn  any  number  of 
days  after  sight.  In  such  cases  it  is  called  a  time  draft.  The 
object  of  a  time  draft  is  either  to  accommodate  the  debtor  and 
creditor  in  the  transaction,  who  may  have  reasons  for  wishing  to 
defer  payment,  or  to  accommodate  the  bank,  if  it  is  a  large  draft, 
in  order  that  it  may  make  provisions  for  its  payment.  Days  of 
grace  are  not  allowed  on  drafts. 

ACCEPTANCE.— When  a  sight  draft  is  presented  to  the 
drawee,  the  drawee  must  either  pay  it  or  refuse  to  do  so.  He  is 
under  no  obligation  to  pay  it  and  trust  the  drawer  for  his  money, 
unless  he  chooses  to  do  so. 

In  the  case  of  a  time  draft,  the  payee  should  present  it  to  the 
drawee  for  acceptance.  Without  this  presentment,  the  drawee 
may  not  even  know  of  the  existence  of  the  draft,  and  may  not  be 
prepared  to  pay  it  when  due,  so  that  it  is  customary  and  proper 
for  the  payee  immediately  upon  the  receipt  of  the  draft,  to  take 
it  to  the  drawee  and  notify  him  that  he  holds  such  an  instrument. 

The  drawee,  if  he  wishes  to  pay  it  when  due,  will  "accept"  the 


BILLS    OF   EXCHANGE.  81 

draft  by  writing  the  word  "accepted"  across  the  face  of  the  draft 
with  the  date,  and  his  name;  or  simply  his  name  with  or  without 
date  or  other  words,  will  be  a  binding  acceptance,  and  is  in  effect 
his  promise  to  pay  the  draft  when  due. 

A  draft  payable  ten  days  after  sight  would  be  due  ten  days 
after  such  acceptance.  The  acceptance,  therefore,  has. the  double 
object  of  making  the  drawee  liable  for  its  payment,  and  fixing 
the  time,  in  case  of  a  time  draft,  of  its  maturity. 

If  the  drawee  refuses  to  accept  the  draft  lie  is  said  to  "dis- 
honor' it,  and  the  draft  is  said  to  be  "dishonored." 

ACCEPTANCE  FOE  HONOR.— When  a  drawee  dishonors 
a  bill,  it  may  have  passed  through  a  number  of  hands,  and  the 
dishonor  of  the  bill  cause  considerable  trouble  to  some  or  all  of 
the  parties  thereto,  hence  it  is  a  rule  of  law  that  after  a  bill  has 
thus  been  dishonored  it  may  be  accepted  or  paid  by  any  person 
for  the  honor  of  any  party  thereto. 

The  holder  of  the  bill  is  not  bound  to -let  it  be  accepted  for 
honor,  but  he  is  bound  to  accept  payment  for  honor,  if  it  is 
tendered. 

The  person  who  accepts  or  pays  for  honor,  must  write  a  state- 
ment on  the  bill  showing  for  whose  honor  he  accepts  or  pays,  and 
must  give  notice  to  that  party  of  the  fact  of  such  acceptance  or 
payment  within  a  reasonable  time.  Having  done  so  he  is  entitled 
to  reimbursement  from  him,  and  from  all  parties  prior  to  him. 

PRESENTMENT  FOR  ACCEPTANCE.— Drafts  payable  at 
sight,  on  demand,  or  after  sight,  must  be  presented  within  ten 
days  plus  a  reasonable  time  for  transmission  to  the  place  of  pre- 
sentment. 

Delay  in  presentment  for  acceptance  is  excused,  however,  when 
caused  by  circumstances  over  which  the  holder  has  no  control. 

As  to  how  presentment  should  be  made,  the  following  rules 
exist: 

(1)  The  draft  must  be  presented  by  the  holder  or  his  agent; 
6 


82  COMMERCIAL   LAW. 

(2)  On  a  business  day  within  reasonable  hours; 

(3)  To  the  drawee  or  his  agent. 

The  drawee  has  until  the  next  business  day  to  accept  or  refuse 
the  draft.  If  the  drawee,  or  his  agent,  or  place  of  business  can 
not  be  found,  the  presentment  is  excused. 

AS  A  NEGOTIABLE  IJSTSTBUMENT,  a  draft  is  identical 
•with  a  promissory  note,  being  subject  to  the  same  equities  and 
defenses  and  endowing  a  bona-fide  holder  with  the  same  rights 
and  privileges.  A  bona-fide  holder  gets  a  good  title  without 
regard  to  whether  he  took  the  bill  before  acceptance  or  after,  so 
long  as  he  procures  it  before  maturity. 

LETTEE  OF  CREDIT.— This  is  a  form  of  non-negotiable 
draft  which  does  not  specify  definitely  any  particular  drawee,  but 
is  given  generally  on  any  bank  or  banker  requesting  them  to  pay 
the  payee  any  sum  or  sums  upon  a  certain  amount  stated  in  the 
letter. 

This  is  for  convenience  of  persons  who  are  taking  extensive 
tours.  Instead  of  carrying  money  they  take  the  letter  of  credit, 
having  first  deposited  with  their  local  bank  a  sum  of  money,  and 
in  each  city  with  which  the  local  bank  does  business,  the  traveler 
may  present  his  letter  of  credit,  and  draw  any  amount  not  to 
exceed  that  specified  in  the  letter,  less  the  amount  already  drawn. 

It  is  the  duty  of  the  bank  from  which  he  draws  to  write  upon 
the  letter  the  date  of  payment,  the  name  of  the  bank  so  paying, 
and  the  amount  paid. 

The  bank  which  pays  the  last  amount,  making  the  total  called 
for  in  the  letter,  keeps  the  letter  to  be  used  as  a  voucher  in  set- 
tling with  the  other  banks. 

As  each  bank  pays  the  traveler,  it  draws  on  the  local  bank  for 
the  amount,  which  it  has  paid,  to  reimburse  itself. 

Letters  of  credit,  while  they  are  used  in  a  similar  manner  as 
negotiable  instruments,  and  we  classify  them  under  that  head, 
are  usually  not  negotiable,  being  drawn  in  favor  of  one  person 
only,  whose  signature  is  clearly  identified. 


BILLS    OF   EXCHANGE.  83 

TEST  QUESTIONS. 

1.  Explain  tiie  transaction  of  sending  $100  to  a  friend  in  New 

York  by  regular  Bank  Exchange. 

2.  A  payee  fails  to  present  a  draft  for  payment    within    the 
proper  time  after  acceptance.     The  drawee  becomes  insol- 
vent before  payment.     Discuss  the  liabilities  of  the  parties. 

3.  A  bill  becomes  due    December  1st,  1896;    December  5th, 

1896,  A  purchases  the  bill  in  good  faith  and  for  a  valuable 
consideration.  Discuss  A's  rights  and  liabilities  and  the 
rights  and  liabilities  of  the  drawer. 

4.  On  March  1st,  1897,  A  buys  a  negotiable  instrument  which 
is    dated   July  1st,  1896.,  payable    six   months  after  date. 
Discuss  A's  right  to  recover  on  the  paper. 


CHECKS. 

DEFINITION. — A  Check  is  a  bill  of  exchange  drawn  upon 
a  bank  or  banker  against  deposit  funds,  payable  on  demand,  with- 
out grace,  and  without  interest. 

EXPLANATION. — The  use  of  checks  is  much  more  recent 
than  that  of  bills  of  exchange  proper. 

Checks  are  usually  used  only  for  making  payments  in  a  par- 
ticular locality,  town,  or  city.  A  business  man  who  necessarily 
pay?  out  large  sums  of  money,  obviates  the  necessity  of  making 
change,  on  paying  his  bills,  and  secures  himself  against  robbers, 
by  placing  his  money  on  deposit  in  a  bank  and  drawing  checks 
for  the  exact  amount  required  to  pay  any  bill  presented. 

The  check  when  presented  and  paid  at  the  bank  is  marked 
''paid'"'  and  a  record  is  kept  of  such  payment  on  the  bank  books, 
so  that  there  is  an  additional  receipt  in  case  the  creditor  attempts 
to  make  a  second  collection. 

Checks  are  sometimes  made  so  that  they  do  not  conform  to 
the  requirements  of  negotiability.  In  such  cases  they  amount  to 
mere  orders  for  the  payment  of  money,  and  afford  no  protection 
whatever  to  a  holder  more  than  any  ordinary  written  contract. 

The  following  is  the  ordinary  form  of  checks: 

Stockton,  Cal.,  January  2,  1898.  Number  10. 

THE  FARMEBS'  BASK. 

Pay   to    U.    M.    Stanley,    or    order,    One  Hundred    and 
($100.25)  Dollars. 

L.  M.  McCOY. 

(84) 


CHECKS.  85 

PARTIES  AND  THEIR  LIABILITIES.— The  names  of 
the  parties  are.  of  course,  the  same  as  in  any  other  bill  of  ex- 
change, and  their  liability  is  the  same,  except  that  the  drawer  and 
endorsers  are  exonerated  by  delay  in  presentment  only  to  the 
extent  of  the  injury  which  they  suffer  thereby;  and  further,  an 
endorsee  after  its  apparent  maturity,  but  without  actual  notice 
of  its  dishonor,  acquires  a  title  equal  to  that  of  an  endorsee  before 
such  period. 

The  drawer  in  executing  the  check  agrees  that  there  are  funds 
on  deposit  in  the  bank  for  its  payment,  and  that  the  bank  will 
pay  the  amount  upon  proper  presentment. 

Sometimes  a  bank  will  even  cash  a  check  when  the  drawer  has 
not  actually  coin  on  deposit  with  which  to  pay  it,  but  in  doing  so 
the  bank,  of  course,  takes  the  chances  on  the  maker's  insolvency, 
or  his  refusing  to  deposit  further  with  them.  In  any  event  the 
bank  is  not  obliged  to  cash  the  check,  and  can  not  be  compelled 
to  do  so  even  if  the  maker  has  funds  on  deposit,  so  that  in  case  of 
refusal  of  payment  the  payee  must  seek  his  remedy  against  the 
maker,  provided  he  has  presented  the  check  within  proper  time, 
and  has  given  proper  notice  of  the  refusal  of  the  bank  to  pay. 

PRESENTMENT  OF  A  CHECK  FOR  PAYMENT,  as  in  the 
case  of  a  bill  of  exchange  proper,  must  be  made  within  ten  days 
after  the  time  in  which  it  can  with  reasonable  diligence  be  trans- 
mitted to  llie  proper  place  for  such  presentment,  and  if  not  pre- 
sented, the  drawer  and  endorsers  are  exonerated,  unless  such  pre- 
sentment is  excused;  and  delay  or  failure  of  presentment  is  only 
excused  when  caused  by  circumstances  over  which  the  holder  has 
no  control. 

Example. — A  draws  a  check  against  The  Farmers'  Bank  in 
favor  of  B.  B  uses  reasonable  diligence  and  it  requires  two  days 
to  reach  the  bank.  The  bank  fails  on  the  llth  day  after  the 
check  is  issued.  The  drawer  is  responsible  for  the  payment  of 
the  check. 

Suppose  that  B  is  immediately  accessible  to  the  bank,  and  does 


86  COMMERCIAL    LAW. 

not  go  to  the  bank  for  the  purpose  of  presentment  until  the  loth 
day.  The  bank  fails  on  the  14th  day.  B  must  lose  the  money. 
The  law  gives  him  ten  days  after  he  reaches  the  bank  within  which 
to  present  his  check.  If  he  fails  to  do  so,  he  must  suffer  for  his 
own  negligence.  So  far  as  A,  the  drawer,  is  concerned,  the  check 
is  presumed  to  be  paid  after  ten  days  plus  the  reasonable  time 
required  to  reach  the  ^ank. 

This  rule  is  a  very  just  one,  otherwise  in  the  above  case  A 
would  be  required  to  keep  large  sums  of  money  on  deposit  to  meet 
checks  drawn  an  indefinite  time  beforehand,  and  be  constantly 
liable  to  extra  losses  in  case  of  the  failure  of  the  bank. 

It  is  to  be  noted,  however,  that  no  matter  how  long  a  time 
elapses  after  the  drawing  of  the  check,  the  holder  may  cash  it  pro- 
vided there  is  funds  in  the  bank,  and  the  bank  is  still  doing  busi- 
ness. 

CEETIFIED  CHECKS.— There  is  nothing  to  prevent  a  per- 
son who  is  so  disposed  from  drawing  a  check  upon  a  bank  in 
which  he  has  no  funds  deposited,  and  which  he  knows  will  not  be 
cashed.  This  being  true,  a  creditor  before  receiving  a  check  in 
payment  will  often  require  that  it  be  ''certified,"  which  means 
that  the  cashier  of  the  bank  against  which  it  is  drawn  is  to  write 
the  word  •'certified/'  or  "good,"  or  some  equivalent  word,  with 
his  name,  across  the  face  of  the  check. 

This  has  the  legal  effect  of  making  the  bank  responsible  for 
the  payment  and  is  practically  the  same  thing  so  far  as  fixing  the 
liability  of  the  bank,  as  the  acceptance  of  a  draft,  except  that  in 
the  case  of  acceptance  of  a  draft,  the  drawer  still  remains  liable, 
while  in  the  case  of  certification  of  a  check,  the  drawer  is  released 
and  the  bank  only  is  liable. 

The  bank,  after  having  certified  a  check,  will  always  make 
note  on  the  depositor's  account,  of  the  amount  certified,  charging 
him  with  the  certification  in  a  similar  manner  as  if  the  money  had 
been  actually  paid.  i 

If  there  is  no  money  on  deposit,  the  bank  will  not  certify  the 
check,  and  the  creditor  will  refuse  to  accept  it. 


CHECKS.  87 

The  principal  reason  for  having  a  check  certified  is  that  the 
bank  is  usually  more  reliable  financially  than  an  individual. 

An  oral  certification  is  of  no  effect.     It  must  be  written. 

FOBGFItY. — A  check  is  liable  to  forgery  in  the  same  manner 
as  any  other  negotiable  instrument,  by  the  signing  of  another's 
name,  or  by  alteration;  and  the  question  frequently  arises  in  case 
of  loss  by  forgery,  whether  the  bank  or  the  maker  must  bear  the 
loss. 

In  forgery  of  signature  the  rule  is  that  the  bank  must  know 
the  signature  of  its  depositors. 

When  a  person  opens  a  deposit  account  with  the  bank,  the 
bank  should  require  him  to  write  his  signature  in  a  book  kept  for 
that  purpose,  just  as  he  expects  to  write  it  in  drawing  checks,  and 
the  bank  is  thereafter  conclusively  presumed  to  know  the  deposit- 
or's signature,  and  if  it  pays  out  any  money  on  his  account  on  a 
forged  signature,  no  matter  how  cleverly  it  may  be  executed,  the 
bank  must  stand  tho  loss. 

The  rule,  however,  is  different  as  regards  forgery  by  altera- 
tion. If  the  drawer  has  properly  and  carefully  filled  all  blanks 
with  some  indelible  writing  material,  so  that  the  checks  can  not 
be  easily  altered,  the  bank  must  stand  the  loss  if  the  check  is 
altered,  and  the  bank  pays  a  larger  sum  than  that  for  which  the 
check  was  originally  drawn. 

On  the  other  hand,  if  by  the  drawer's  ordinary  carelessness  in 
leaving  blanks,  or  writing  lightly,  or  with  pencil,  he  renders  the 
forgery  easily  consummated,  the  drawer  must  bear  the  loss. 

The  maxim  of  law  upon  which  this  rule  rests  is:  "Of  Iwo  inno- 
cent parties  he  must  suffer  who  made  the  wrong  possible." 

BAISTK  BOOK. — When  a  person  deposits  money  in  a  bank 
against  which  he  wishes  to  draw  checks,  he  is  given  a  small  bank 
book  ruled  Avith  debit  and  credit  columns,  for  the  purpose  of  keep- 
ing a  record  of  money  deposited  and  checked  out. 

When  a  deposit  is  made,  the  bank  enters  the  amount  on  the 
left  page,  and  this  operates  as  a  receipt. 


88  COMMERCIAL    LAW. 

Periodically  the  depositor  hands  his  book  to  the  cashier,  and  the 
amount  of  the  checks  drawn  is  entered  on  the  other  page  and  the 
book  balanced,  thus  showing  him  at  any  given  time  just  how  much 
money  is  to  his  credit. 

CERTIFICATE  OF  DEPOSIT.— If  a  person  wishes  to  deposit 
money  in  a  bank  without  any  intention  of  drawing  checks  against 
the  deposit,  and  simply  for  safe  keeping,  the  bank  will  give  him 
what  is  called  a  Certificate  of  Deposit. 

The  ordinary  form  is  as  follows: 

THE  FARMERS'  BANK. 
No.  SCO. 

This  certifies  that  J.  Brown  has  deposited  in  this  bank  Five 
Hundred  ($500.00)  Dollars,  payable  to  the  order  of  himself  on 
return  of  this  Certificate  properly  endorsed. 

R.  EDWARDS, 
Cashier. 

It  should  be  noticed  that  the  words  of  negotiability  are  slightly 
different  from  those  in  other  negotiable  instruments.  The  word 
"promise"  is  not  used,  the  word  "payable"  being  substituted.  It 
is,  however,  a  negotiable  instrument  and  may  circulate  from  hand 
to  hand  indefinitely. 

An  ordinary  check  signed  by  the  cashier  of  the  bank  is  some- 
times drawn  in  lieu  of  the  Certificate  of  Deposit,  and  serves  exactly 
the  same  purpose.  It  is  called  a  cashier's  check.. 


TEST  QUESTIONS. 

1.  A  person  presents  a  check  to  a  bank  for  payment.  The 
bank  pays  the  check  and  afterwards  discovers  that  the  sig- 
nature is  a  forgery.  Who  loses  the  amount 'of  the  check? 


CHECKS.  89 

2.  September  1st,  1896,  a  Stockton  grocer  gives  a  check  to  a 

Stockton  merchant  for  $100.  September  14th,  the  mer- 
chant takes  the  check  to  the  bank  and  finds  that  the  bank 
has  suspended  payment.  Can  he  compel  the  grocer  to  pay 
him  another  $100?  Give  reasons. 

3.  A  check  is  forged  by  altering  the  amount  stated  therein 
from  $100  to  $200.     The  bank  pays  $200  on  the  check. 
Who  must  lose  the  $100,  the  bank  or  the  drawer?    Discuss 
fully. 

4  A  draws  a  check  on  a  bank  December  1st,  1897;  he  gives 
it  to  B  in  payment  of  a  debt  December  15th,  1897.  De- 
cember 30th  B  goes  to  the  bank  and  finds  that  the  bank 
was  insolvent  December  10th.  Can  he  compel  the  payment 
of  the  debt  by  A?  Discuss  fully. 


CHAPTER  XVI. 

TRANSFER  OF  NEGOTIABLE  PAPER. 

BONA-FIDE  HOLDER.— We  have  before  stated  that  a  bona- 
fide  holder  is  one  who  takes  a  negotiable  instrument, 

(1)  For  value; 

(2)  Without  notice  of  defects; 

(3)  In  the  usual  course  of  business;  and 

(4)  Before  maturity. 

FOE  VALUE. — It  is,  as  we  have  learned,  the  general  rule  of 
all  contracts  that  there  must  be  a  valuable  consideration,  or  the 
contract  is  void,  and  this  rule  holds  good  in  regard  to  negotiable 
paper. 

It  is  not  necessary  that  actual  money  value  be  paid  or  that 
something  equal  in  value  be  paid.  The  valuable  consideration 
may  be  merely  the  forbearance  to  sue  on  an  obligation;  but  in 
any  event  unless  there  is  some  substantial  value  given  the  trans- 
action would  give  rise  to  suspicion  of  fraud. 

This  rule  is  a  just  one,  for  if  a  person  has  paid  nothing  for  an 
instrument  he  loses  nothing,  and  is  not  injured  if  the  instrument 
is  void. 

WITHOUT  NOTICE  OF  DEFECTS.— By  defects  in  nego- 
tiable paper  we  mean  that  there  has  been  fraud,  duress,  menace, 
mistake,  want  of  consideration,  or  some  such  like  irregularity 
between  the  original  parties  at  the  time. the  paper  was  executed. 

In  order  that  a  person  may  claim  to  be  a  bona-fide  holder  and 
have  all  the  rights  pertaining  to  negotiable  paper,  he  must  have 
no  notice  of  any  such  defects,  must  be  actually  innocent  and  igno- 
rant of  anything  tending  to  show  that  the  paper  is  invalid.  For- 
(90) 


TRANSFER   OF   NEGOTIABLE   PAPER.  91 

mal  notice  is  not  necessary.  If  he  purchases  a  paper,  knowing 
of  such  defects,  he  gets  no  better  title  than  the  one  from  whom  he 
received  it  had. 

IN  THE  USUAL  COURSE  OF  BUSINESS.— Checks,  drafts, 
and  other  negotiable  instruments  are  passed  from  hand  to  hand 
as  a  daily  occurrence  in  the  payment  of  debts,  making  up  of  bal- 
ances, and  various  other  business  transactions,  and  if  a  person 
procures  the  paper  in  the  usual  course  of  business  he  is  presumed, 
so  far  as  that  is  concerned,  to  have  a  good  and  sufficient  title;  but 
if  he  accepts  a  paper  from  an  entire  stranger,  who  asks  for  the 
loan  of  money  and  agrees  to  give  the  paper  as  security,  it  is  not 
a  business-like  transaction,  and  not  in  the  usual  course  of  busi- 
ness, and  such  a  transaction  is  sufficient  to  arouse  the  suspicions 
of  an  ordinarily  prudent  business  man.  In  such  a  case,  therefore, 
he  can  not  be  held  to  have  received  the  paper  in  the  ordinary 
course  of  business,  and  even  though  he  may  have  paid  value  for 
it  without  actual  notice  of  defects,  still,  if  it  should  develop  that 
there  were  defenses  against  its  payment,  or  the  paper  was  void,  he 
would!  be  obliged  to  suffer  any  loss  rather  than  the  maker. 

BEFORE  MATURITY.— Negotiable  paper  is  presumed  to  be 
paid  when  due.  If  it  is  not  paid  when  due,  the  law  declares  that 
it  has  lost  its  negotiability,  and  is  thereafter  mere  assignable 
paper  in  the  same  manner  as  an  ordinary  written  contract. 

Therefore,  before  a  person  can  claim  to  be  a  bona-fide  holder, 
and  entitled  to  all  his  rights  thereunder,  he  must  show  that  he 
has  obtained  the  paper  before  maturity.  While  the  paper  may 
pass  from  hand  to  hand  by  endorsement  after  maturity,  its  nego- 
tiability dies  with  the  day  of  maturity,  and  no  matter  how  much 
value  the  holder  may  pay,  or  how  innocent  he  may  be  of  any 
defects,  or  how  regularly  he  may  have  received  it,  if  he  purchases 
after  maturity,  and  the  paper  is  void,  he  has  no  recourse  against 
the  maAer. 

If  his  endorser's  title  is  good,  his  own  will  be  good  after 
maturity.  If  it  is  not  good,  his  will  not  be  good. 


92  COMMERCIAL   LAW- 

MATURITY.— What  maturity  is,  is,  in  the  light  of  what  has 
been  said,  very  important  to  know.  "When  the  time  is  stated  in 
days,  days,  of  course,  must  he  counted,  when  it  is  in  months,  calen- 
dar months  are  meant. 

In  counting  the  time  the  date  of  the  paper  is  excluded,  and  all 
of  the  last  day  is  included. 

A  negotiable  paper  bearing  interest,  payable  on  demand,  is 
due  one  year  after  its  date,  whether  demanded  or  not;  a  note 
on  demand  without  interest,  matures  six  months  after  date. 


TEST  QUESTIONS. 

1.  January  2nd,  1898. 

On  demand  I  promise  to  pay  to  J.  Eoss,  or  order,  One 
Hundred  ($100.00)  Dollars  with  interest  at  one  (1)  per 
cent  per  month.  R.  BOYD. 

July  2d,  1898,  the  paper  having  circulated  from  hand  to 
hand,  comes  into  the  possession  of  A.  Is  A  a  bona-fide 
holder  so  far  as  having  received  the  paper  before  maturity 
is  concerned? 

2.  Stockton,  August  1st,  1897. 
On  demand  I  promise  to  pay  to  J.  Ross,  or  order,  One 

Hundred  ($100.00)  Dollars.  R.  BOYD. 

December  1st,  1897,  the  note  comes  into  the  possession  of 
A.  So  fax  as  time  is  concerned  is  A  a  bona-fide  holder?, 


CHAPTER  XVII. 

ENDOKSEMENT. 

DEFINITION. — We  have  seen  that  in  accepting  or  certifying 
an  instrument,  the  person  so  doing  must  write  across  the  face  of 
the  instrument,  while  in  endorsement  he  must  write  across  the 
bade  of  the  instrument. 

The  place  on  the  instrument  where  a  name  is  written,  to  a 
large  extent  determines  the  purpose  for  which  it  is  written. 

Endorsement  is  the  writing  of  one's  name  on  the  back  of  a 
negotiable  instrument,  with  or  without  other  words,  with  the  pur- 
pose of  transferring  the  title  thereto. 

The  name  when  thus  written  also  evidences  the  contract  to 
transfer.  In  case  of  a  paper  made  payable  "to  bearer,"  however, 
it  is  not  necessary  that  the  instrument  should  be  endorsed  in  order 
to  pass  title,  as  the  words  "to  bearer"  in  themselves  give  the  title 
to  whomever  may  be  in  possession  of  it,  while  all  instruments  pay- 
able "to  order"  must  be  endorsed. 

WHO  MAY  ENDOESE. — Any  competent  party  may  endorse, 
the  rule  as  to  competent  parties  being  the  same  as  in  ordinary 
contracts.  Under  these  rules,  a  minor  or  person  of  unsound  mind 
may  avoid  his  endorsement  if  made,  and  may  recover  back  his 
paper  from  his  immediate  endorsee,  but  after  it  gets  into  the  hand 
of  a  third  person,  who  is  a  bona-fide  holder,  the  bona-fide  holder 
is  protected,  and  the  minor  or  person  of  unsound  mind  has  no 
right  to  recover  his  paper;  and,  as  has  been  intimated  before,  even 
a  thief  or  finder  may  endorse  and  pass  a  good  title  to  a  bona-fide 
holder,  although  he  himself  has  no  title. 

If  a  person  who  has  a  right  to  endorse  a  paper  dies,  his  legal 
representative  may  endorse  the  paper. 

(93) 


94  COMMERCIAL  LAW. 

A  paper  owned  by  a  partnership  may  be  endorsed  by  any  mem- 
ber of  the  firm  signing  the  firm  name. 
FORM  OF  ENDORSEMENT.— 
(]}  In  blank;  as  "R.  Thomas." 

(2)  In  full;  as  "Pay  to  R.  Boyd,  or  order. 

R.  THOMAS." 

(3)  Without    recourse:    "Pay  to    R.  Boyd,  or  order,  without 
recourse  to  me.  R.  THOMAS." 

or  simply,  "Without  recourse. 

R.  THOMAS." 

(4)  Restrictive;  "Pay  to  R.  Boyd  for  collection. 

R.  THOMAS." 

IN  BLANK. — An  endorsement  in  blank  is  one  in  which  no 
endorsee  is  named,  being  simply  the  endorser's  name  written  on 
the  back  of  the  paper. 

This  in  legal  effect  is  equivalent  to  making  the  paper  payable 
"to  bearer,"  but  any  lawful  holder  may  afterwards  turn  a  blank 
endorsement  into  a  special  one  by  writing  above  it  a  direction  for 
payment  to  a  particular  person. 

ENDORSEMENT  IN  FULL,  as  shown  above,  specifies  the 
name  of  the  person  to  whom  it  is  to  be  paid,  and  prevents  any  oAe 
from  transferring  it  except  the  person  designated. 

This  form  of  endorsement  is  to  be  preferred  to  a  blank  endorse- 
ment as  it  affords  security  against  fraud  on  the  part  of  an  unlawful 
holder,  should  the  paper  be  lost,  by  making  it  necessary  for  the 
paper  to  have  the  signature  of  the  person  designated  as  endorsee. 

WITHOUT  RECOURSE.— When  a  person  wishes  to  relieve 
himself  from  liability  for  payment  as  endorser,  he  uses  the  restrict- 
ive form  of  endorsement.  The  only  effect  this  form  of  endorse- 
ment has  is  to  relieve  the  endorser  from  liability  for  payment. 
It  does  not  effect  the  negotiability  of  the  instrument  or  relieve 
the  endorser  in  any  other  way. 

As  shown  above,  either  an  endorsement  in  blank  or  an  endorse- 
ment in  full  may  be  made  without  recourse. 


ENDORSEMENT.  91 

RESTRICTIVE  ENDORSEMENT.— It  frequently  happem 
that  a  person  decides  to  transfer  a  note  to  another  person  merely 
/or  collection,  or  to  be  held  as  security,  or  for  some  temporary 
purpose,  and  wishes  to  prevent  such  person  from  transferring  it 
to  others.  Such  an  endorsement  in  effect  creates  an  agency  and 
dots  not  transfer  the  full  title. 

The  endorser  may  however  in  turn  endorse  to  a  third  person, 
but  only  by  like  restrictive  endorsement,  he  having  only  a  limited 
title;  as  agent  himself,  he  can  not  convey  more  than  the  same 
limited  title  as  agent. 

ENDORSER'S  LIABILITY.— Every  endorser  of  a  negoti- 
able instrument,  unless  his  endorsement  is  restricted,  warrants  to 
every  subsequent  holder  thereof,  who  is  not  liable  thereon  to  him, 

(1)  That  it  is  in  all  respects  what  it  purports  to  be; 

(2)  That  he  has  a  good  title  to  it; 

(3)  That  the  signatures  of  all  prior  parties  are  binding  upon 
them; 

(4)  That  if    the   instrument   is    dishonored    he   will,   upon 
proper  notice,  or  without  notice,  where  excused  by  law,  pay  the 
same. 

Of  course,  as  we  have  seen,  a  person  who  restricts  his  endorse- 
ment is  not  liable  for  the  payment  of  the  paper,  but  is  liable  on 
the  first  three  warranties  above  stated. 

The  first  three  warranties  are  in  the  nature  of  original  war- 
ranties, and  if  there  is  a  breach  of  any  of  them,  the  party  injured 
may  proceed  against  the  endorser  at  once. 

The  fourth  warranty  is  conditional  that  if  the  paper  is  dis- 
honored, the  endorser  will  pay.  This  makes  it  necessary  to  pre- 
sent the  paper  to  the  maker  and  upon  his  refusal  to  pay,  to  give 
notice  to  the  endorser. 

These  warranties  must  be  taken,  however,  in  connection  with 
other  rules  concerning  negotiable  paper. 

In  the  case  of  a  check  we  have  seen  that  the  bank  upon  which 
it  is  drawn  is  absolutely  responsible  for  the  genuineness  of  the 


96  COMMERCIAL    LAW. 

drawer's  signature;  so  in  this  case  the  endorser  is  liable  for  the 
genuineness  of  the  signature,  if  the  bank  pays  on  a  forged  signature. 

ALLONGE. — After  passing  through  many  hands,  a  negotiable 
instrument  sometimes  has  all  available  space  filled  with  endorse- 
ments. In  such  a  case  it  is  permissible  and  lawful  to  paste  a  piece 
of  blank  paper  on  the  end  of  the  instrument,  upon  which  other 
endorsements  may  be  written.  This  is  called  an  "Allonge." 

TIME  OF  ENDORSEMENT.— As  has  been  before  explained, 
an  endorsee,  after  maturity,  takes  the  paper  subject  to  all  equities 
and  defenses  between  the  original  parties,  not  however  between 
other  parties. 

The  fact  that  an  instrument  has  arrived  at  maturity  and  has 
not  been  paid  is  a  suspicious  circumstance,  sufficient  to  put  any 
one  on  guard;  and  it  is  the  law  of  negotiable  instruments  that  they 
become  at  maturity,  while  not  void,  simply  ordinary  written  con- 
tracts. 

It  must  not  be  understood  that  the  non-payment  at  maturity 
relieves  the  maker  from  the  payment  absolutely,  but  it  allows  him 
to  present  any  legal  defense,  if  any  he  have,  against  its  payment. 

AGAINST  PRIOE  ENDORSEES.— The  holder  even  after 
maturity  has  a  right  of  action  for  breach  of  the  following  general 
warrant}'  in  addition  to  the  warranties  above  stated: 

'•'One  who  sells  an  instrument  thereby  warrants  that  he  has 
no  knowledge  of  any  facts  which  tend  to  prove  it  worthless,  or 
its  invalidity  for  any  cause/' 


TEST  QUESTIONS. 

1.  Stockton,  July  1st,  1898. 

On  demand  we  promise  to  pay  One  Hundred  ($100.00) 
Dollars  to  J.  Boss,  or  order.  E.  BOYD, 

D.  STONE. 


ENDORSEMENT.  97 

Tn  the  above  note  Stone  claims  to  be  liable  only  as  an  endorser. 
Are  there  any  circumstances  under  which  he  might  sub- 
stantiate the  claim?  Discuss  fully. 

2.  A  holds  a  note  to  which  he  has  forged  B's  name.     A  then 

sells  the  note  to  0,  and  endorses  it  "without  recourse." 
B  now  proves  the  note  to  be  forged.  Can  C  collect  it 
from  A? 

3.  A,  B  and  C  are  successive    endorsers;   each   has   endorsee 

"without  recourse."  D,  a  bona-fide  holder,  finds  on  pre- 
sentment for  payment  that  the  note  is  a  forgery.  What 
are  his  rights  if  any  against  the  prior  endorsers  and  the 
maker? 

4.  A  signs  a  note  in  favor  of  B,  B  knowing  A  at  the  time  to 
be   insolvent.     B    sells   the  note  to  C,  after  maturity,  C 
being  ignorant  of   the  maker's  insolvency.     Has    C    any 
remedy  against  B? 


CHAPTER  XVIII. 

PRESENTMENT  AND  NOTICE. 

NECESSITY  FOR. — It  is  not  necessary  to  make  presentment 
for  payment  to  the  principal  debtor  on  a  negotiable  instrument 
in  order  to  charge  him;  but  it  is  necessary  in  order  to  hold  the 
endorsers  on  an  instrument  to  make  demand  of  payment  upon  the 
principal  debtor  on  the  day  of  maturity,  and  upon  his  refusal  to 
pay  to  notify  the  endorsers  of  such  refusal. 

PRESENTMENT— HOW  MADE.— Presentment  for  payment 
must  be  made  as  follows,  as  nearly  as  by  reasonable  diligence  it  is 
practicable: 

(1)  By  the  holder,  or  his  agent; 

(£)  To  the  principal  debtor  at  the  place  specified  for  payment, 
and  if  the  debtor  is  not  there,  to  any  person  having  charge  of  such 
place; 

(3)  If  no  place  is  specified,  wherever  the  debtor  may  be  found; 

(4)  Upon  the  day  of  its  maturity,  or  if  on  demand  on  any  day, 
and  within  reasonable  business  hours. 

If  the  debtor  has  no  place  of  business,  or  if  he  can  not  with 
reasonable  diligence  be  found,  presentment  is  excused. 

If  the  day  of  maturity  falls  on  a  holiday,  presentment  may  be 
made  on  the  next  business  day  thereafter. 

While  it  is  not  absolutely  necessary,  it  is  proper  and  a  good 
business  practice  for  the  person  who  makes  the  presentment  actu- 
ally to  show  the  paper  to  the  debtor,  and  inform  him  that  he 
is  the  holder  and  has  come  to  demand  payment,  or  words  to  that 
effect. 

PROTEST. — When  a  maker  or  acceptor  of  an  instrument 
refuses  payment,  the  paper  is  said  to  be  dishonored,  and  notice  of 

the  dishonor  is  given  by  protest. 
(98) 


PRESENTMENT   AND    NOTICE.  99 

This  protest  is  a  document  containing  a  copy  -of  the  instru- 
ment, stating  the  presentment,  the  manner  in  which  it  was  made, 
(he  presence  or  absence  of  the  debtor,  and  his  refusal  to  accept  or 
pay,  and  the  reason  if  any;  and  finally  protesting  against  all  the 
parties  to  be  charged. 

This  protest  must  be  made  on  the  day  of  presentment,  or  on 
the  next  business  day,  and  is  made  by  a  notary  public,  who  makes 
a  second  presentment  himself  in  order  that  he  may  personally 
certify  to  the  dishonor  of  the  instrument. 

The  notary  then  sends  written  notices  of  the  fact  of  protest 
to  the  parties  to  the  paper,  and  makes  a  statement  on  the  protest 
of  the  names  of  the  parties  to  whom  he  has  sent  notices. 

All  this  given  under  the  seal  of  the  notary,  is  kept  by  the 
holder  as  evidence  of  presentment  and  dishonor. 

It  is  not  necessary  to  make  a  formal  protest  in  the  case  of  an 
inland  bill,  where  the  parties  are  near  at  hand,  and  proof  is  read- 
ily furnished;  but  the  law  requires  that  a  foreign  bill  shall  be  for- 
mally protested,  either  before  a  notary  public,  as  above  described, 
or,  if  one  can  not  be  obtained,  by  any  reputable  person  in  the 
presence  of  two  witnesses. 

The  notice  of  dishonor  is  not  required  to  be  in  any  particular 
form,  and  may  be  given, 

(1)  By  delivering  it  to  the  party  to  be  charged,  or  his  agent, 
personally; 

(2)  By  mailing  the  notice,  postage  prepaid,  in  time  for  the  first 
mail  which  closes  in  the  afternoon  of  the  first  business  day  suc- 
ceeding the  dishonor. 

It  is  usual  for  a  holder  to  give  notice  to  all  prior  holders,  but 
if  he  chooses  to  do  so  he  may  notify  only  the  holder  immediately 
preceding  him.  When  this  is  done,  that  holder  may  in  turn  have 
a  like  time  to  notify  his  preceding  holder  and  so  on,  one  giving 
notice  to  the  other  until  all  are  notified. 

Of  course,  if  the  principal  debtor  pays  the  paper  on  present- 
ment, all  parties  thereto  are  released  from  all  obligations,  and  no 
protest  or  notice  is  had. 


100  COMMERCIAL    LAW. 

NOTICE— WHEN  EXCUSED.— 

(1)  When  the  party  by  whom  notice  should  be  given,  can  not, 
with  reasonable  diligence,  ascertain  either  the  place  of  business, 
or  residence  of  the  party  to  be  charged;  or 

(2)  When  there  is  no  post-office  communication  between  the 
towns  where  each  resides,  if  in  different  towns; 

(3)  When  the  party  to  be  charged  is  the  person  who  dishonors 
the  instrument;  or 

(4)  When  notice  is  waived  by  the  party  entitled  thereto;  notice 
of  dishonor  is  excused. 

It  often  happens  that  a  paper  is  signed  and  several  other  par- 
ties immediately  endorse  it  for  the  primary  object  of  securing  its 
payment.  In  such  ease  it  is  customary  for  such  endorsers  to  sign 
a  statement  like  the  following: 

"We  hereby  waive  demand  of  payment,  protest,  and  notice;" 
and  such  a  waiver  is  binding  upon  them,  and  relieves  the  holder 
from  the  trouble  of  making  any  demand,  protest,  or  notice. 


TEST  QUESTIONS. 

1.  The    maker  of    a  negotiable    instrument    lives  on  a  farm. 
The  holder  of  such  instrument  on  the  day  of  maturity  goes 
to  the  farm  for  the  purpose  of    making    presentment  for 
payment.     He  finds  that  the  maker  is  absent  and  can  not 
learn   his  exact  whereabouts.      Under  such  circumstances 
can  he  give  notice  of  presentment? 

2.  A  draft  falls  due  on  Sunday.     The  next  day  is  the  Fourth 

day  of   July.      Can  presentment   be  lawfully  made  there- 
after? 

3.  A  holder  attempts  to  give  notice  of  protest  by  depositing 
a  letter,  properly  addressed  and  prepaid,  in  the  post-office 
before  the  post-office  closes  in  the  afternoon  of  the  next 
day  after  the  dishonor.     The  train  which  would  regularly 
carry  the  letter,  does  not  leave  the  station  until  the  second 
day  after  the  dishonor.     Is  the  notice  properly  given? 


CHAPTER  XIX 
GUABANTY  AND  SUKETYSHIP. 

EXPLANATION. — Early  in  the  history  of  the  law  there  were 
material  differences  between  a  surety  and  a  guarantor,  but  theee 
differences  have  been  so  modified  by  statute  that  at  present,  so 
far  as  the  legal  status  and  legal  liability  are  concerned,  their  posi- 
tions are  practically  identical. 

There  are  some  differences  yet  remaining,  but  they  are  in  the 
main  merely  formal,  and  not  essential  differences,  so  that  we  will 
consider  the  two  as  constituting  but  one  subject. 

A  GUARANTY  is  a  promise  to  answer  for  the  debt,  default, 
or  miscarriage  of  another.  It  will  be  seen  from  the  definition 
that  the  contract  of  guaranty  is  a  contract  annexed  to,  or  placed 
upon  another  contract;  e.  g.,  A  has  made  a  contract  by  which  he 
promises  to  pay  a  certain  sum  of  money  to  B;  C  writes  a  statement 
upon  this  contract  (or  he  may  make  it  on  a  separate  paper),  to  the 
effect  that  if  A  fails  to  pay  the  money,  he  himself  will  pay  it. 

LIABILITY. — It  was  further  held  that  it  was  necessary  that 
the  guarantor  should  have  notice  of  default  on  the  part  of  his 
principal,  but  such  is  not  now  the  law. 

No  notice  is  required  and  a  guarantor  is  therefore  absolutely 
liable  immediately  upon  the  default  of  the  principal. 

IN  WRITING. — A  contract  of  guaranty  or  suretyship  must 
be  in  writing,  except  in  case  where  the  promise  may  be  taken  as 
being  an  original  obligation,  and  where  in  fact  the  principal  credit 
is  given  the  guarantor  himself;  as  in  case  A  goes  into  a  grocery 
store  and  says  to  the  proprietor,  "Send  B  certain  groceries;  I  will 
pay  for  them;"  while  the  grocer  knows,  of  course,  that  the  grocer- 

(101) 


102  COMMERCIAL    LAW. 

ies  are  for  B,  and  that  A  is  to  receive  no  benefit  from  them,  still 
he  may  hold  A  as  the  principal  debtor,  under  his  own  statement, 
without  any  contract  in  writing. 

CONSIDERATION. — When  a  guaranty  is  entered  into  at  the 
same  time  with  the  original  obligation  or  with  the  acceptance  of 
the  latter  by  the  guarantee,  and  forms  with  that  obligation  a  part 
of  the  consideration  to  him,  no  other  consideration  need  exist. 

In  all  other  cases  there  must  be  a  consideration  different  from 
that  of  the  original  obligation,  but  the  writing  need  not  express 
the  words  "value  received,"  or  in  any  other  way  show  a  considera- 
tion. Consideration  may  be  proved  orally  at  any  time  when 
necessary.  Of  course,  in  all  cases,  being  a  contract,  a  guaranty 
requires  a  consideration. 

KINDS. — Generally  speaking  there  are  three  kinds  of  guar- 
anties: of  payment,  of  collection,  and  continuing  guaranty. 

GUARANTY  OF  PAYMENT.— One  who  guarantees  the  pay- 
ment of  a  written  instrument  may  write,  "I  guarantee  the  pay- 
ment of  the  within  instrument,"  or  some  such  like  words,  and 
sign  his  name,  or  he  may  sign  his  name  on  the  face  of  the  instru- 
ment, beneath  that  of  the  maker,  and  add  the  words  "surety"  or 
'•guarantor."  He  may  even  write  his  name  on  the  back  of  an 
instrument  in  a  similar  manner  as  an  endorser;  but  it  is  to  be 
carefully  noticed  that  he  is  not  an  endorser,  and  has  not  the  right 
of  notice  which  an  endorser  has  in  case  of  failure  of  the  principal 
to  pay. 

His  guaranty  means  that  he  will  pay  absolutely  upon  the  fail- 
ure of  the  principal  debtor. 

GUARANTY  OF  COLLECTION.— A  guaranty  to  the  effect 
that  an  obligation  is  good  or  collectible,  imports  that  the  debtor 
is  solvent,  and  that  the  demand  is  collectible  by  the  usual  legal 
proceedings  if  taken  with  reasonable  diligence. 

In  making  such  a  guaranty  the  guarantor  usually  writes,  "I 
hereby  guarantee  the  collection  of  this  note,"  and  signs  his  name 


GUARANTY  AND  SURETYSHIP.  103 

He  becomes  liable  to  pay  the  obligation  only  after  a  judgment  has 
been  obtained  against  the  principal  debtor,  and  an  execution 
returned  unsatisfied. 

Thus  we  notice  a  distinction  between  the  guaranty  of  pay- 
ment and  the  guaranty  of  collection.  In  the  case  of  guaranty  of 
payment,  mere  refusal  to  pay  makes  the  guarantor  liable;  while 
in  guaranty  of  collection,  the  creditor  must  bring  a  suit  and  pur- 
sue it  until  the  last  legal  procedure  is  had. 

As  to  what  is  a  reasonable  time  within  which  to  commence 
suit,  it  has  been  held  that  the  failure  of  the  creditor  to  begin  an 
action  for  six  months  after  maturity  of  the  obligation  constitutes 
such  negligence  as  will  release  the  guarantor. 

If  it  is  shown,  however,  that  at  maturity  and  thereafter  the 
principal  debtor  was  insolvent,  or  has  left  the  state  or  county, 
leaving  no  property  therein  not  exempt  from  execution,  the  guar- 
antor is  liable  without  suit. 

CONTINUING  GUARANTY.— A  guaranty  relating  to  a 
future  liability  of  the  principal  under  successive  transactions,  is 
called  a  continuing  guaranty,  e.  g.,  "I  hereby  guarantee  the  pay- 
ment of  all  goods  which  The  Stockton  Paper  Mills  may  hereafter 
sell  to  J.  B.  Ross,  within  six  months  from  date  hereof,  and  to  the 
amount  of  Two  Thousand  ($2,000.00)  Dollars;  this  to  be  taken 
as  a  continuing  guaranty. 
Dated  July  21st,  1898.  (Signed)  R.  RYAN." 

The  above  is  the  usual  form  of  continuing  guaranty.  It  may, 
however,  be  simply  for  a  specified  time,  without  stating  an  amount, 
or  for  an  indefinite  time,  stating  a  specified  amount 

This  guaranty  means  that  Ryan  would  be  responsible  for  any 
Two  Thousand  Dollars  worth  of  goods  purchased  during  the  six 
months. 

The  purchaser  can  therefore,  after  purchasing  the  full  amount, 
pay  off  a  part  or  all,  and  the  guaranty  is  still  valid  for  any  further 
purchases  up  to  the  amount,  and  within  the  time. 

A  continuing  guaranty  may  be  revoked  at  any  time  by  t&e 
guarantor  in  respect  to  future  transactions. 


104  COMMERCIAL  LAW. 

EXONERATION  OF  GUARANTORS.— A  guarantor  is  ex- 
onerated except  so  far  as  he  may  be  indemnified  by  the  principal, 
if  by  any  act  of  the  creditor  without  the  consent  of  the  guarantor 
the  original  obligation  of  the  principal  is  altered  in  any  respect, 
or  the  rights  or  remedies  of  the  creditor  against  the  principal  in 
respect  thereto,  are  in  any  way  impaired  or  suspended;  and  the 
partial  satisfaction  of  an  obligation  reduces  the  obligation  of  a 
guarantor  to  the  same  extent. 

E.  g.,  if  in  the  case  of  continuing  guaranty  above  given,  the 
paper  company  should  agree  with  J.  B.  Ross  to  extend  credit  to  him 
for  purchases  beyond  the  six  months'  life  of  the  guaranty,  that 
would  be  such  a  relinquishment  of  the  right  to  sue  Ross  during  the 
six  months  as  would  also  relieve  the  guarantor  from  liability  for 
payment,  unless  he  agreed  that  the  credit  should  be  given. 

A  guarantor's  obligation  is  extinguished  also  if  he  performs 
or  offers  to  perform  the  obligation  resting  upon  him  in  accord- 
ance with  the  contract,  and  such  performance  is  refused. 

Such  a  case  comes  under  the  general  rule  of  good  tender, 
which  we  have  before  considered.  In  any  event  a  guarantor  can 
not  be  held  beyond  the  express  terms  of  his  contract. 

The  ordinary  ways  in  which  a  guarantor  may  be  discharged 
from  his  liability  are, 

(1)  Expiration  of  time,  on  a  continuing  guaranty; 

(2)  Notice  from  the  guarantor; 

(8)  Alteration  of  the  agreement,  such  as  substituting  differ- 
ent goods  for  the  ones  for  which  payment  is  guaranteed; 

(4)  Giving  time  to  the  principal;  and 

(5)  Fraud  practised  upon  the  guarantor  by  the  creditor  or  by 
the  debtor  with  the  creditor's  consent. 

Fraud  practised  upon  the  guarantor  by  the  debtor,  without 
the  knowledge  of  the  creditor,  will  not  release  the  guarantor,  but 
gives  him  a  right  of  action  against  the  debtor  for  damages  for 
the  fraud. 

REMEDIES  OF  PARTIES.— As  we  have  seen,  if  the  prin- 


GUARANTY    AND    SURETYSHIP.  105 

cipal  debtor  fails  to  perform  his  obligation  the  creditor  may  sue 
the  guarantor  at  once,  and  if  the  guarantor  is  compelled  to  pay 
the  creditor,  he  in  turn  has  a  right  to  sue  the  principal  debtor; 
having  paid  his  debt  for  him,  he  has  a  right  to  demand  reimburse- 
ment. 

CONTRIBUTION. — Where,  as  often  happens,  there  are  sev- 
eral guarantors  or  sureties,  each  one  is  liable  for  all  of  the  debt 
and  the  creditor  may  compel  any  one  to  pay  all  of  the  debt.  Any 
guarantor  who  is  thus  compelled  to  pay  all  of  the  debt,  may  in 
turn  compel  each  of  his  co-sureties  to  contribute  their  proportion 
of  the  debt  to  reimburse  him.  This  is  known  as  contribution 
among  sureties  or  guarantors. 


TEST  QUESTIONS. 

1.  A  enters  a  store  with  B.     B  orders  some  goods  for  him- 
self.    A  says  to  the  merchant,  "If  B  does  not  pay  for  those 
goods  I  will."     B  fails  to  pay  for  them.     What  right  of 
collection,  if  any,  has  the  merchant  against  A? 

2.  A  guarantees  the  payment  by  B  of  $1,000  for  goods  pur- 

chased within  one  year's  time.  On  the  last  day  of  the 
year  B  purchased  goods  at  thirty  days'  time.  Can  the 
wholesaler  hold  A  for  the  goods?  Discuss  the  question 
fully. 

3.  A  wholesaler  and  his  customer  A  go  to  B  together  and  A 

makes  this  statement,  "The  wholesaler  will  furnish  me  a 
choice,  well-selected  stock  of  fresh  groceries  to  the  amount 
of  $5,000  if  you  will  guarantee  the  payment."  B  agrees 
and  gives  a  written  guaranty.  The  wholesaler  ships  gro- 
ceries to  A,  knowing  that  they  are  not  salable  nor  fresh. 
A  fails  to  pay  for  the  groceries.  Is  B  liable  on  his  guar- 
anty? Discuss  fully. 


CHAPTER  XX. 
1NTEKEST  AXD  USUKY. 

INTEREST  is  the  compensation  allowed  by  law  or  fixed  by 
the  parties  for  the  use,  or  forbearance,  or  detention  of  money. 

This  subject  is  especially  important  to  every  one,  and  the  defi- 
nition just  stated  should  be  carefully  examined. 

It  will  be  noticed  that  it  is  compensation-  either  allowed  by 
law,  or  fixed  by  the  parties;  hence  under  the  definition  any  rate 
fixed  by  the  parties  is  allowable  by  law. 

A  common  transaction  is  borrowing  money  and  paying  inter- 
est thereon  for  the  use  of  money,  but  the  law  allows  interest  in 
cases  where  people  refuse  or  neglect  to  pay  money  which  they  are 
lawfully  entitled  to  pay,  as  in  case  where  a  judgment  is  obtained 
against  a  person  and  he  declines  to  pay  the  amount  of  the  judg- 
ment. 

He  may  not  be  using  the  money;  he  may  not  even  have  the 
money  with  which  to  pay,  nevertheless  interest  is  charged  against 
him  because  he  detains  money  from  the  person  who  holds  the 
judgment  against  him. 

Interest  is  usually  a  certain  per  cent  upon  the  principal  sum, 
and  unless  otherwise  stated,  is  presumed  by  law  to  be  annual. 
It  is  usual  to  state  definitely  in  the  contract  that  the  interest  is 
to  be  at  a  certain  rate  per  cent  per  annum,  or  per  month. 

"Ten  per  cent  per  annum/'  means  an  interest  of  $10  on  each 
$100  for  each  year  the  money  is  used  or  detained. 
(106)  • 


INTERES1    AND    USURY.  107 

LEGAL  KATE. — The  legal  rate,  unless  there  is  an  express 
contract  in  writing  fixing  a  definite  rate,  is  seven  per  cent  per 
annum.  This  applies  to  all  money  due. 

The  laws  of  the  different  states  provide  for  different  rates, 
some  states  limiting  the  amount  to  a  certain  rate. 

The  law  of  the  place  where  the  contract  for  payment  of  inter- 
est is  made,  however,  will  g  vern  in  the  payment  thereof,  unless 
it  is  expressly  provided  in  t.ie  instrument  that  the  principal  and 
interest  are  payable  in  some  different  place. 

ON  WHAT  ALLOWED.— Interest  is  allowed  by  agreement 
on  all  forms  of  debt,  from  the  time  of  the  creation  of  the  debt 
until  it  is  paid;  or  it  may  begin  at  any  time  after  the  creation  of 
the  debt,  or  after  the  debt  is  due,  and  in  any  event  where  no 
express  agreement  is  made  interest  is  allowed  on  all  claims  as  soon 
as  they  are  due  and  remain  unpaid,  and  on  all  judgments. 

For  example;  if  goods  are  sold  "for  cash"  and  cash  is  not  paid, 
interest  may  be  collected  from  the  dtte  of  the  sale  until  payment. 
If  they  are  sold  on  sixty  days'  time,  interest  begins  at  the  expira- 
tion of  the  sixty  days. 

COMPOUND  11  i'TEREST.— Compound  interest  is  aUowed 
only  where  there  is  a  special  agreement  therefor  by  the  parties, 
evidenced  by  a  contract  in  writing.  They  may  agree  that  the 
interest  may  be  paid  yearly,  semi-annually,  or  even,  monthly,  and 
if  not  so  paid  v  ien  due  it  may  be  added  to  the  principal  and  be- 
come a  part  thereof,  and  bear  interest  at  the  same  rate. 

USURY  is  the  taking  of  higher  interest,  or  the  agreement  to 
take  or  give  higher  interest  than  the  law  provides. 

This,  as  we  have  noticed  by  a  careful  study  of  the  definition 
of  interest,  can  not  apply  in  California,  as  any  rate  of  interest 
may  be  allowed  by  agreement. 

In  some  states,  however,  the  law  forbids  the  taking  of  any 
greater  than  the  legal  ^ate,  and  provides  penalties  therefor. 


•1-08  COMMERCIAL    LAW. 

TEST  QUESTIONS 

1.  A  signs  a  note  as  follows: 

Jane  *st,  1896. 

One  day  after  date  I  promise  to  pay  to  J.  Brown,  or 
order,  One  Hundred  ($100)  Dollars,  without  interest. 

E.  CA.TNE. 
May  interest  be  at  any  time  collected  on  the  note? 


CHAPTER  XXI. 

SALES  OF  PERSONAL  PKOPERTY. 

INTRODUCTION.— Property  is  anything  which  Has  value, 
and  is  susceptible  of  ownership;  air,  for  example,  has  value,  but  is 
not  susceptible  of  ownership,  while  land  complies  with  the  require- 
ments of  the  definition. 

Property  is  divided  with  respect  to  kind  into  two  general 
classes,  real  and  personal  property. 

Real  property  will  be  discussed  fully  in  a  subsequent  chapter. 

Personal  property,  while  difficult  of  exact  definition,  may  be 
said  to  be  generally  movable  property,  such  as  live  stock,  furni- 
ture, vehicles,  and  musical  instruments.  Even  where  property 
is  considered  immovable,  such  as  a  house,  yet  if  it  is  actually 
moved,  it  is  considered  as  personal  property;  or  a  house  may  be 
considered  as  personal  property,  even  while  remaining  affixed  to 
the  soil,  if  it  is  placed  upon  the  land  for  a  mere  temporary  pur- 
pose, and  to  be  removed. 

Trees  are  considered  real  property  while  growing.  As  soon  as 
cut  down,  are  considered  personal  property. 

Annual  crops,  however,  such  as  wheat  and  barley,  are  con- 
sidered personal  property,  and  may  be  sold  or  mortgaged  as  such 
even  while  growing. 

TRADE-MARK. — One  who  makes  a  business  of  selling  a  par- 
ticular article  may,  by  his  skill  in  preparing  or  handling  such 
article,  procure  for  it  a  large  sale  and  great  profit  to  himself. 
When  such  is  the  case,  and  he  desires  to  prevent  others  from  imi- 
tating his  goods,  or  selling  similar  goods  under  like  name,  he 
may  use  what  is  called  a  trade-mark. 

(109) 


110  COMMERCIAL   LAW. 

A  trade-marK  is  any  word,  letter,  device,  emblem,  or  symbol 
affixed  by  any  tradesman  to  denote  any  goods  sold  by  him,  other 
than  any  words  denoting  a  class  or  description. 

In  order  to  be  effective  a  person  so  claiming  a  trade-mark 
must  file  with  the  Secretary  of  State,  or  with  the  Commissioner 
of  Patents  in  the  United  States  Patent  Office,  a  copy  or  descrip- 
tion of  such  trade-mark,  accompanied  by  his  fee  for  filing  of  $5.00 
to  the  State,  or  $25  to  the  United  States. 

A  trade-mark  thus  filed  is  personal  property,  and  subject  to 
sale  as  other  personal  property. 

INFRINGEMENT  OF  TRADE-MARK.— Any  one  who  uses 
a  forged  trade-mark  with  a  wilful  intent  to  deceive  or  defraud 
is  guilty  of  a  misdemeanor,  and  may  be  punished  accordingly;  and 
the  phrase  "forged  trade-mark"  includes  every  alteration  or  imi- 
tation of  any  trade-mark,  so  nearly  resembling  the  original  as  to 
be  likely  to  deceive. 

Any  one  infringing  a  trade-mark,  in  addition  to  the  penal 
offense  committed,  is  also  liable  in  damage  to  whatever  extent  the 
rightful  owner  of  the  trade-mark  may  suffer  by  reason  of  the 
infringement. 

DEFINITION. — A  sale  is  a  contract  by  which  for  a  pecun- 
iary consideration  called  a  price,  one  transfers  to  another  an  inter- 
est in  property.  By  analyzing  this  definition  we  see  that  a  sak 
is  a  contract,  and  hence  liable  to  all  rules  regarding  contracts: 
and  further  that  the  consideration  is  pecuniary. 

"Price"  means  "money."  A  contract  in  which  the  considera- 
tion is  goods  or  merchandise  is  called  "barter,"  and  thirdly  we 
notice  that  the  sale  is  a  transfer  of  an  interest  in  property,  so  that 
a  sale  can  be  completed  even  before  the  property  itself  changes 
hands. 

SUBJECT  MATTER.— One  of  the  essential  elements  of 
every  contract,  as  we  have  learned,  is  subject  matter. 

In  the  sale  of  personal  property  this  subject  matter  must  be 
either  in  actual  existence,  or  in  potential,  or  probable,  existence; 


SALES  OF  PERSONAL  PROPERTY.         Ill 

as  for  example,  A  during  the  winter  makes  a  sale  of  peaches  which 
lie  expects  to  have  on  his  trees  the  following  summer.  The 
peaches  in  this  case  are  in  potential  or  probable  existence.  If, 
however,  the  crop  should  fail  for  any  cause,  the  sale  will  become 
void,  because  of  failure  of  subject  matter,  and  the  purchaser 
may  recover  any  moneys  paid,  and  rescind  his  contract. 

A  similar  case  is  where  the  parties  have  entered  into  a  con- 
tract of  sale  in  regard  to  something  which  has  ceased  to  exist, 
in  ignorance  of  that  fact;  as  where  A  has  bought  a  horse  from  B, 
and  at  the  time  of  making  the  sale  the  horse  was  dead.  A  can 
recover  the  price  paid  and  avoid  the  sale  on  the  ground  of  no  sub- 
ject matter. 

The  same  is  true  where  the  subject  matter  is  partly  destroyed, 
as  in  case  of  goods  damaged  by  fire  or  otherwise. 

ILLEGAL  SUBJECT  MATTEE.— This  subject  has  already 
been  discussed  in  a  previous  chapter,  and  the  same  rule  applies  to 
the  subject  matter  of  sales  as  to  any  other  contract. 

The  subject  matter,  however,  is  considered  to  be  legal  unless 
the  law  especially  declares  it  to  be  illegal. 

The  sale  of  obscene  and  immoral  publications  is  an  instance  of 
illegal  subject  matter  prohibited  by  law,  and  the  sale  of  such  mat- 
ter so  prohibited  is  absolutely  void,  and  neither  party  has  any 
recourse  against  the  other;  the  seller  for  the  recovery  of  the  price, 
or  the  buyer  for  non-delivery  of  the  writing. 

PARTIES. — The  parties  to  a  sale  must  be  competent  parties, 
under  the  general  rule  of  parties  to  contracts.  In  the  contract  of 
sale  the  particular  names  given  are  seller  or  vendor,  and  buyer  or 
vendee. 

STATUTE  OF  FRAUDS.— The  particular  portion  of  the 
Statute  of  Frauds  which  refers  to  the  sale  of  personal  property,  or 
an  agreement  to  buy  or  sell,  is  as  follows: — 

No  sale  of  personal  property,  or  agreement  to  buy  or  sell  it  for 
a  price  of  $200  or  more,  is  valid,  unless, 

Students  Library 

St.  Anthony's  Seminary 


112  COMMERCIAL   LAW. 

(1)  The  agreement,  or  some  note  or  memorandum  thereof,  be 
in  writing,  and  subscribed  by  the  party  to  be  charged,  or  by  his 
agent;  or 

(2)  The  buyer  accepts  and  receives  part  of  the  thing  sold; 

(3)  The  buyer  at  the  time  of  the  sale  pays  a  part  of  the  price. 

By  a  careful  analysis  of  the  above  it  will  be  seen  that  the  stat- 
ute contains  very  just  provisions  in  regard  to  sales,  and  at  the 
same  time  makes  sale::  of  small  amounts  easy  to  consummate. 

SUBDIVISION  ONE.— It  is  not  necessary  that  there  should 
be  a  special  formal  agreement  in  writing.  A  mere  note  or  memo- 
randum is  sufficient,  and  it  need  not  be  subscribed  by  both  par- 
ties. The  person  who  gives  the  note  or  memorandum  only  need 
subscribe,  or  write  his  name  under,  the  memorandum. 

A  formal  Bill  of  Sale,  as  it  is  called,  is  often  made,  however,  in 
which  is  stated  formally  that  the  vender  sells  to  the  vendee  at  a 
certain  price  certain  described  property,  and  in  which  he  warrants 
that  he  has  title  to  the  same. 

The  vender  signing  the  instrument  can  be  held  liable  under 
its  terms,  while  it  can  not  be  enforced  against  the  vendee  unless 
lie  has  also  signed  it. 

SUBDIVISION  TWO.— If  the  buyer  accepts  and  receives 
part  of  the  thing  sold,  this  does  away  with  the  necessity  of  any 
writing. 

The  fact  that  he  has  taken  part  of  the  goods  as  his  own,  the 
law  declares  to  be  sufficient  evidence  that  he  has  bought  them, 
and  no  writing  or  further  proof  is  required. 

SUBDIVISION  TIIKEE.— This  is  similar  to  subdivision 
two.  If  the  vendee  pays  at  the  time  part  of  the  price,  or  all  of 
it,  this  is  held  to  be  sufficient  to  make  a  valid  sale  without  regard 
to  any  writing  or  actual  delivery  of  the  goods. 

Examples:  A  wishes  to  buy  fifty  tons  of  hay  at  $10  per  ton. 
We  see  at  a  glance  that  the  amount  is  over  $200,  hence  there  are 
three  ways  in  which  he  can  make  a  valid  purchase. 


SALES  OF  PERSONAL  PROPERTY.         113 

First:  He  may  secure  a  written  instrument  from  B,  the  ven- 
dor, without  paying  anything,  or  even  seeing  the  hay. 

Second:  He  may  go  and  take  a  wagon  load  of  the  hay  and 
transfer  it  to  his  own  premises  without  any  writing;  or 

Third:  He  may  pay  a  part  of  the  $500  without  any  writing, 
or  without  receiving  any  of  the  hay.  In  either  of  the  three  cases 
a  valid  sale  is  consummated. 

AUCTION  SALES. — A  sale  by  auction  is  a  sale  by  public 
outcry  to  the  highest  bidder  on  the  spot. 

It  is  complete  when  the  auctioneer  publicly  announces  by  the 
fall  of  his  hammer  or  in  any  other  customary  manner  that  the 
thing  is  sold.  Until  he  makes  such  announcement  any  bidder 
may  withdraw  his  bid. 

IN  WK1TING. — An  auction  sale  of  course  must  conform  to 
the  Statute  of  Frauds  in  regard  to  sales,  and  when  property  is 
sold  by  auction  an  entry  made  by  the  auctioneer  or  his  clerk  in 
his  sale  book  at  the  time  of  the  sale,  specifying  the  names  of  the 
vendor  and  the  vendee,  the  thing  sold,  the  price  and  terms  of  sale, 
binds  both  parties  in  the  same  manner  as  if  made  by  themselves. 
In  such  sales  the  auctioner  is  considered  as  the  agent  of  both  par- 
ties. 

BY  BIDDING. — This  is  the  employment,  by  a  seller,  of  any 
person  to  bid  without  an  intention  on  the  part  of  such  bidder  to 
buy,  and  on  the  part  of  the  seller  to  enforce  his  bid,  and  is  such  a 
fraud  upon  the  buyer  as  entitles  him  to  rescind  his  purchase;  or 
when  he  discovers  the  fraud  he  may  demand  the  property  on  ten- 
der of  the  amount  of  the  highest  bona-fide  bid.  For  example,  A 
is  a  bona-fide  bidder.  He  bids  $50  on  a  horse;  B,  a  bona-fide 
bidder,  bids  $60  on  the  horse;  A  then  bids  $70;  C,  a  by-bidder, 
continues  to  bid  against  A  until  $100  is  reached,  and  the  horse 
declared  sold  to  A  for  that  price.  If  A  discovers  the  fraud  he 
can  compel  the  sale  of  the  horse  to  him  upon  tendering  $70,  the 
amount  of  his  highest  bid  against  B,  the  only  other  bona-fide 
bidder. 

8 


114  COMMERCIAL   LAW. 

An  owner  of  property  or  his  agent  has  a  right  as  a  matter  of 
course  to  bid  on  his  own  goods  if  he  does  so  fairly  and  openly, 
unless  he  has  announced,  or  the  auctioneer  has  announced  by  his 
authority,  that  the  sale  is  to  be  without  limit  or  reserve,  or  makes 
any  equivalent  declaration. 


TEST  QUESTIONS. 

1.  A  water-trough  is  imbedded  in  the  ground.      Discuss    the 

question  as  to  whether  it  is  personal  or  real  property. 

2.  A  makes  a  contract  with  B  for  the  purchase  of  twenty  tons 

of  hay  at  $5.00  per  ton,  to  be  hauled  by  A  from  a  large 
stack  until  the  full  twenty  tons  is  supplied.  A  afterwards 
refuses  to  take  the  hay.  Is  he  liable  in  damages? 


CHAPTER  XXII. 

DELIVERY. 

TRANSFER  OF  TITLE.— Ownership  or  title  is  an  intangible 
thing.  The  only  way  we  can  tell  that  a  person  owns  a  thing,  or 
has  title  to  it,  is  by  the  conduct  of  himself  and  others  in  regard 
tc  that  thing. 

As  we  have  seen  in  the  preceding  chapter,  the  sale  of  personal 
property  of  the  value  of  $200,  or  over,  must  be  evidenced  by  cer- 
tain acts,  and  when  these  acts  are  done,  the  title,  poetically  speak- 
ing, wings  its  flight  in  spirit  from  the  vendor  to  the  vendee. 

VALUE  LESS  THAN  $200.— In  case  where  the  property  is 
less  than  $200  in  value,  the  usual  evidence  of  the  title  having 
passed,  is  the  delivery  of  the  property  the  subject  of  the  sale. 
Unless  credit  is  extended  by  agreement,  all  sales  are  presumed  to 
be  for  cash. 

DELIVERY  means, 

(1)  The  actual  changing  of  the  possession  from  the  vendor  to 
the  vendee  of  the  article  sold;  or 

(2)  In  cases  where  the  article  sold  is  of  such  great  bulk  as  to 
be  difficult  of  actual  delivery,  a  symbol   may  be  passed.      As,  if 
bales  of  cotton  are  sold,  the  key  of  the  warehouse  in  which  it  is 
stored,  may  be  delivered  instead  of  the  cotton. 

This  amounts  to  a  delivery  of  the  cotton  itself,  and  is  called 
Constructive  Delivery. 

DELIVERY,  HOW  MADE.— A  vendor  must  put  personal 
property  into  a  condition  fit  for  delivery,  and  deliver  it  to-  the 
buyer  within  a  reasonable  time  after  demand. 

Delivery,  however,  does  not  mean  that  the  vendor  shall  carry 

(115) 


116  COMMERCIAL   LAW. 

the  property  to  the  vendee's  residence,  or  place  of  business,  but 
in  absence  of  any  agreement,  personal  property  sold  is  deliverable 
at  the  place  where  it  is  at  the  time  of  the  sale,  or  agreement  to 
sell,  or  if  it  is  not  then  in  existence  it  is  deliverable  at  the  place 
where  it  is  produced. 

If  the  vendor  agrees  to  send  the  thing  sold  to  the  vendee's 
place  of  business  or  residence,  he  must  follow  the  directions  of  the 
latter  as  to  the  manner  of  sending.  If  he  does  not,  he  is  liable  for 
its  damage. 

If  he  follows  such  directions  and  uses  ordinary  care  in  for- 
warding the  article,  it  is  at  the  risk  of  the  buyer. 

EXAMPLES. — A  buys  kerosene  at  a  grocery  store  with  the 
intention  of  carrying  it  away  himself.  As  soon  as  the  kerosene 
is  drawn  and  set  out  on  the  counter  within  reach  of  A,  it  amounts 
to  a  delivery  to  him. 

If  he  orders  the  kerosene  sent  to  his  house  in  the  grocer's  deliv- 
ery wagon,  and  through  the  driver's  carelessness  the  kerosene  is 
lost  en  route,  it  is  not  a  delivery,  and  the  grocer  must  stand  the 
loss. 

Suppose  further  that  the  oil  is  to  be  sent  by  the  grocer's 
wagon,  and  while  on  the  way  lightning  strikes  the  can  and  the 
oil  is  lost. 

This  being  without  fault  of  the  grocer,  the  oil  is  considered  as 
having  been  delivered,  and  A  must  stand  the  loss. 

DELIVERY  BY  SEGREGATION.— This  is  a  case  of  actual 
delivery  where  it  is  sometimes  difficult  to  tell  whether  a  delivery 
has  been  made,  and  a  great  deal  of  litigation  has  been  had  to 
determine  what  constitutes  a  segregation  or  delivery  of  goods  that 
are  not  easily  carried  away  at  the  time  of  the  sale;  e.  g.,  if  A  goes 
to  B  and  agrees  on  a  price  he  will  pay  for  fifty  bags  of  wheat, 
which  are  with  other  bags  of  wheat  in  a  large  pile,  the  question 
always  arises  in  the  event  of  the  failure  to  take  the  wheat,  or  in 
the  event  of  its  destruction,  whether  at  the  time  of  the  contract, 
the  wheat  was  delivered. 


DELIVERY.  117 

The  rule  in  this  regard  is  as  follows:  If  at  the  time  of  the 
contract,  fifty  bags  of  wheat  were  separated  from  the  pile,  or  so 
marked  and  designated  so  that  A  knew  exactly  which  fifty  sacks 
of  wheat  were  his,  such  segregation  or  marking  would  constitute 
a  legal  delivery. 

On  the  other  hand  if  no  such  marking  or  segregation  was  had, 
there  was  no  delivery,  and  in  case  all  of  the  wheat  was  destroyed 
before  A  removed  the  fifty  bags,  B  must  lose  all,  as  he  can  not 
specify  any  particular  wheat  as  belonging  to  A. 

The  general  rule  in  the  abstract  is  as  follows:  ''When  any- 
thing remains  to  be  done  by  the  vendor  to  the  goods  before  they 
are  ready  for  the  vendee,  the  title  does  not  pass,  and  it  is  not  a 
delivery  until  such  thing  is  done." 

DELIYEEY  TO  CAKitfER.— Merchants  in  the  west  fre- 
quently purchase  large  quantities  of  goods  in  eastern  cities,  which 
are  sent  across  the  continent  by  rail. 

The  railroad  companies  are  known  as  common  carriers,  and  a 
delivery  of  goods  by  a  Xew  York  merchant,  properly  packed, 
marked,  and  in  good  condition,  is  considered  a  delivery  to  the 
merchant  in  the  west,  particularly  if  the  buyer's  directions  as  to 
what  route  the  goods  are  to  be  sent,  are  followed. 

In  case  then  of  a  wreck  or  fire  by  which  the  goods  are 
destroyed  en  route,  the  seller  would  be  relieved  of  any  liability, 
and  would  not  suffer  the  loss. 

STOPPAGE  IN  TRANSIT!!— Taking  the  cases  just  above 
cited  of  the  purchase  from  the  New  York  merchant  of  goods,  it 
is  a  rule  of  law  that  notwithstanding  that  delivery  to  the  common 
carrier  is  a  delivery  of  the  goods  to  the  western  merchant,  and 
that  the  western  merchant  must  bear  the  loss  if  any  be  suffered; 
yet  if  the  price  of  the  goods  has  not  been  paid,  and  the  vendor 
learns  of  the  vendee's  insolvency  before  the  goods  reach  the  ven- 
dee, he  may  notify  the  carrier  to  stop  the  goods  and  return  them 
to  him. 


118  COMMERCIAL   LAW. 

This  right,  however,  can  only  be  exercised  under  the  following 
circumstances. 

(1)  Debt  must  be  for  the  identical  goods  shipped. 

(2)  Goods  must  be  in  carrier's  hands. 

(3)  Vendee  must  be  insolvent. 

IN  TRANSIT. — Literally  we  understand  that  when  goods  are 
in  transit,  they  are  actually  moving,  or  in  the  process  of  carriage 
from  one  place  to  another,  but  so  far  as  concerns  the  right  of 
stoppage  in  transitu,  the  goods  are  in  transit  even  after  they  have 
reached  their  destination  and  are  in  the  warehouse  or  freight 
station  of  the  carrier. 

At  any  time  therefore  before  the  delivery  into  the  actual  or 
constructive  possession  of  the  biiyer,  the  right  may  be  exercised. 

If,  however,  the  buyer  has  the  actual  possession,  or  the  key  of 
the  warehouse  (constructive  possession),  the  right  is  at  an  end. 

THE  DEBT.— It  must  be  carefully  remembered  that  the 
goods  can  not  be  stopped  on  account  of  a  general  balance  due,  but 
the  money  must  be  owing  on  the  identical  goods. 

Even  if  a  part  payment  has  been  made  on  the  goods,  they  may 
be  stopped.  And  where  a  note  has  been  given  for  the  purchase 
price,  the  goods  may  be  stopped,  as  a  note  is  not  a  payment,  but 
mere  evidence  of  the  debt. 

If  part  of  the  price  of  the  goods  has  been  paid,  and  the  vendor 
stops  the  goods  in  transit,  he  must  either  return  the  portion  paid 
or  relinquish  such  part  of  the  goods  as  the  debtor  may  demand  as 
the  equivalent  of  the  price,  if  the  goods  are  of  such  material  as 
to  be  severable  Of  course,  if  he  is  tendered  the  full  amount  of 
the  price  by  the  debtor,  he  must  release  the  goods. 

THE  INSOLVENCY. — By  insolvency  is  meant  when  a  per- 
son ceases  to  pay  his  debts  in  the  manner  usual  with  persons  of 
his  business,  or  when  he  declares  his  inability  or  unwillingness  to 
do  so. 

It  is  not  necessary  that  the  vendor  should  wait  until  the  ven- 


DELIVERY  1 19 

dee  be  declared  an  insolvent  by  a  Court.  Such  a  delay  would 
defeat  the  right  of  stoppage  entirely.  The  insolvency,  or  at  any 
rate  the  vendor's  knowledge  of  the  insolvency,  must  have  been 
after  the  shipment  of  the  goods.  If  he  sells  goods,  knowinf  the 
purchaser  to  be  insolvent,  he  does  so  at  his  peril. 

STOPPAGE,  HOW  EFFECTED.— The  vendor  mav  take 
actual  possession  of  the  goods  himself,  or  he  may  give  notice  TO 
the  carrier  or  his  agent  who  has  immediate  possession  of  the 
goods. 

In  the  case  above  referred  to,  a  telegram  sent  to  the  con- 
ductor of  a  train  or  an  agent  through  whose  hands  the  goods 
must  pass  before  reaching  their  destination  would  be  sufficient, 
and  if  the  carrier  delivers  the  goods  to  the  vendee  after  receiving 
such  notice  he  is  liable  in  damages  to  the  vendor. 

The  following  is  the  ordinary  form  of  such  notice: — 

New  York  City,  Sept.  21,  1898. 
To  Wells,  Fiirgo  &  Co., 

Agent  at  San  Francisco, 

Dear  Sir:  On  the  19th  inst.  I  delivered  to  you  two  cases  of 
dry  goods  marked  and  consigned  to  J.  Ross,  San  Francisco,  Cali- 
fornia. Certain  things  have  arisen  which  give  me  the  right  of 
stoppage  in  transitu.  I  therefore  hereby  instruct  you  not  to 
deliver  these  goods,  but  to  hold  them  subject  to  my  further 
order. 

J.  Dalton. 

LEGAL  EFFECT.— Stoppage  in  transitu  does  not  of  itself 
rescind  the  sale,  but  is  a  means  of  enforcing  the  lien  of  the  seller 
for  the  price  of  the  goods.  Until  further  action  is  taken,  there- 
lore,  the  vendor  does  not  recover  title  to  the  goods  by  recovering 
possession,  but  simply  holds  them  to  satisfy  his  lien  for  the  pur- 
chase price. 

BILL  OF  LADIXG. — A  bill  of  lading  is  a  written  memoran- 
dum, sigiy/?  hv  the  carrier,  stating  that  certain  goods  have  been 


120  COMMERCIAL   LAW. 

received  for  shipment,  with  the  names  of  the  consignor  and  the 
consignee,  and  an  agreement  upon  his  part  to  deliver  them  to  the 
consignee. 

This  bill  of  lading  is  usually  made  in  duplicate,  one  copy 
being  sent  to  the  consignee;  and  upon  presenting  it  to  the  car- 
rier, the  carrier  is  ordinarily  bound  to  deliver  to  him  the  goods 
named  therein. 

In  case  of  stoppage  in  transitu,  however,  the  carrier  is  under 
no  obligation  to  deliver  the  goods  to  an  insolvent  vendee,  even  if 
he  does  produce  a  bill  of  lading,  but  it  often  happens  that  a  bill 
of  lading  is  received  by  the  vendee  many  days  before  the  goods 
arrive,,  and  if  he  sells  the  bill  of  lading  to  a  bona-fide  purchaser, 
the  right  of  stoppage  in  transitu  can  not  afterwards  be  exercised 
so  as  to  defeat  the  rights  of  the  innocent  holder  of  the  bill  of 
lading. 

While  a  bill  of  lading  has  not  all  the  elements  of  a  negotiable 
instrument,  nevertheless  the  law  provides  that  it  may  pass  to  a 
bona-fide  holder  in  like  manner  as  a  bill  of  exchange. 

FRAUDULENT  SALES.— In  order  to  defraud  creditors,  a 
person  owing  sums  of  money  often  seeks  to  dispose  of  his  property 
by  a  formal  sale  with  the  understanding,  express  or  implied,  that 
the  property  or  its  equivalent,  is  to  be  returned  to  him.  The  law 
especially  provides,  however,  that  all  such  sales,  or  attempted 
sales,  are  void,  and  declares  that  unless  such  sale  is  accompanied 
by  immediate  delivery,  and  followed  by  actual  and  continued 
change  of  possession,  it  is  void  as  against  creditors. 

In  certain  instances,  however,  where  actual  delivery  is  diffi- 
cult, the  law  allows  such  a  transfer  to  be  evidenced  by  a  written 
document,  stating  the  fact  of  the  sale,  which  must  be  recorded  in 
the  office  of  the  County  Recorder  in  the  County  where  the  prop- 
erty is  situated. 

Even  when  these  directions  of  the  law  are  followed,  the  sale 
can  be  set  aside  at  the  instance  of  the  creditors  if  they  can  show 
that  the  sale  has  been  consummated  for  the  purpose  of  defraud- 
ing them. 


121 
TEST  QUESTIONS. 

1.  A  and  B  were  conversing  in  regard  to  a  horse.     A  said,  "I 

will  give  you  $50  for  that  horse  in  the  corral."  B  replies, 
"Agreed.  There  is  your  horse."  Was  there  a  delivery  of 
the  horse  sufficient  to  constitute  a  sale? 

2.  A  ordered  a  harvesting  machine  from  B.     While  in  a  half- 
finished  state  the  machine  was  destroyed.     Whose  loss  is  it? 

3.  A  gives  a  hill  of  sale  of  his  grocery  store  to  B.     B  came  to 
the  store,  but  A  did   not    remove.      A's    signs    were   not 
removed.      Was   there  a  delivery  of   the    store  as   against 
creditors  of  A? 

4.  A  vendor  of  goods  learns  after  they  are  shipped  that  the 

vendee  is  insolvent.  State  fully  how  he  may  protect  him- 
self from  the  effect  of  the  vendee's  insolvency. 

5.  Goods  are  shipped  from  Boston  to  San  Francisco.     Upon 
their  arrival,  the  Railroad  Company  places  them  in  their 
warehouse  and  notifies  the  consignee  that  the  goods  are 
at  his  disposal.     Before  the  goods  are  removed  the  carrier 
receives  notice  from  the  vendor  to  hold  them.     Explain 
the  rights  of  the  parties. 

6.  A  vendor,  under  proper  circumstances,  notifies  a  carrier  to 

hold  goods.  Before  the  date  of  such  notice,  the  vendee 
has  received  and  sold  the  Bill  of  Lading  for  a  small  part 
of  the  value  of  the  goods,  and  immediately  thereafter  de- 
clared himself  insolvent.  Discuss  the  rights  of  the  parties. 


CHAPTER  XXIII. 
WARRANTY. 

DEFINITION. — A  warranty  is  an  engagement  by  which  a 
seller  assures  to  a  buyer  the  existence  of  some  fact  affecting  the 
transaction,  whether  past,  present,  or  future. 

This  assurance  or  warranty  is,  of  course,  a  contract.  It  is 
usually  made  at  the  time  the  contract  of  sale  is  entered  into,  and 
the  consideration  for  the  principal  contract  is  the  consideration 
for  the  warranty.  If  made  independently  of  the  contract  of  sale, 
it  requires  a  separate  consideration. 

Warranties  may  be  express  or  implied. 

EXPKESS  WARRANTY  consists  of  a  warranty  expressly 
stated  in  words.  All  statements,  however,  made  by  the  vendor 
for  the  purpose  of  inducing  another  to  buy,  are  not  warranties. 

All  such  expressions  as,  "These  are  the  finest  peaches  raised 
in  the  State,"  or  "This  is  the  handsomest  horse  I  ever  saw,"  are 
mere  dealer's  talk,  expressions  of  his  opinion,  and  not  warranties. 

The  test  of  a  warranty  is,  "Did  the  vendor  assume  to  assert  a 
fact  of  which  the  vendee  was  ignorant,  or  did  he  merely  intend 
to  give  his  opinion?" 

By  a  careful  study  of  the  general  definition  oi  warranty  and 
the  test  above  given,  it  will  be  seen  that  a  vendor  can  not  be 
chargeable  with  a  breach  of  warranty,  even  if  he  wilfully  misstates 
some  material  fact,  provided  the  vendee  is  not  deceived. 

IMPLIED    WARRANTIES.— It  would    be  inconvenient  and 
extremely  annoying  to  both  parties  if  the  buyer,  in  order  to  pro- 
tect himself,  was  required  to  procure,  or  the  seller  to  give,  express 
warranties  concerning  the  subject  matter  of  every  sale. 
(122) 


WABEAXTY.  123 

Hence  the  law  in  certain  cases  declares  that  by  the  very  act  of 
selling  goods,  a  vendor  gives  certain  warranties. 

The  following  are  implied  warranties  on  the  part  of  the 
vendor: 

(1)  That  he  has  a  good  and  unincnmbered  title  to  the  prop- 
erty. 

(2)  If  sold  by  sample^  that  the  quality  of   the  bulk   shall  be 
equal  to  the  quality  of  the  sample. 

(3)  That  provisions  sold  by  a  regular  dealer  for  domestic  use 
to  an  actual  consumer  are  sound  and  wholesome. 

(4)  If  he  has  manufactured  an  article,  he  warrants  that  it  is 
free  from  any  defects  not  disclosed,  arising  from  the  process  of 
manufacture,  and  that  proper  materials  have  been  used  therein. 

(5)  That  an  article  manufactured  for  a  particular  purpose  is 
reasonably  fit  for  that  purpose. 

(6)  That  merchandise  inaccessible  to  the  buyer,  is  sound  and 
merchantable. 

(7)  Generally,  a  seller  impliedly  warrants  that  neither  he  nor 
his  agent  knows  of  any  fact  concerning  the  thing  sold  which  would 
destroy  the  buyer's  inducement  to  buy. 

REMAEKS. — Under  subdivision  three  above,  it  will  be  noted 
that  there  is  no  implied  warranty  in  the  case  of  a  wholesale  dealer 
in  provisions  selling  to  a  retail  dealer,  while  there  is  a  warranty 
from  the  retailer  to  the  person  who  buys  for  his  own  use.  There 
are  good  reasons  for  this  distinction. 

The  retailer  is  presumed  to  be  an  expert  judge  of  wholesome 
provisions,  and  to  inspect  them  before  accepting  them,  and  as  he 
does  not  necessarily  consume  any  of  them  himself,  no  personal 
injury  may  come  to  him  through  unwholesome  provisions. 

It  must  also  be  carefully  noted  that  the  provisions  must  be 
sold  by  a  regular  retail  dealer,  or  there  is  no  warranty,  and  it 
has  been  held  that  it  is  only  when  the  provisions  are  sold  for 
immediate  consumption,  that  the  warranty  applies.  If  the  pur- 
chaser holds  them  indefinitely  before  attempting  to  use  them,  he 


124  COMMERCIAL   LAW. 

can  not  then  claim  the  benefit  of  implied  warranty  if  he  finds 
them  unwholesome. 

Under  subdivision  five,  it  is  to  be  noted  that  an  article  manu- 
factured for  a  purpose  is  only  required  to  be  ordinarily  or  reason- 
ably fit  for  the  purpose. 

It  need  not  be  the  best  article  or  machine  for  the  purpose,  but 
it  is  sufficient  if  it  is  reasonably  fit.  Thus,  if  a  man  contracts  for 
the  manufacture  of  a  gun  which  will  shoot  half  a  mile,  and  the 
gun  is  produced  that  will  shoot  half  a  mile  with  a  reasonable 
degree  of  precision,  the  warranty  is  satisfied,  even  though  there 
may  be  many  other  guns  which  will  shoot  half  a  mile  with  a  far 
greater  degree  of  precision. 

The  general  implied  warranty,  stated  in  subdivision  seven, 
covers  a  multitude  of  cases  of  warranty;  e.  g.,  a  horse  dealer  may 
know  that  a  particular  horse,  which  he  is  offering  for  sale,  has 
inherited  tender  feet,  and  in  all  probability  will  go  lame  upon 
being  driven.  , 

Under  the  first  six  implied  warranties,  he  is  freed  frbm  any 
responsibility,  but  under  the  last,  if  a  purchaser  can  show  the 
dealer's  knowledge  of  the  defect  in  the  horse,  he  may  recover  for 
breach  of  warranty. 

EXPEESS  STATEMENT  CONTROLS  IMPLIED.— While 
it  is  true  that  where  no  express  warranty  is  given,  the  above  con- 
sidered implied  warranties  are  always  in  effect,  yet  any  of  these 
implied  warranties  may  be  set  aside  and  superpeded  by  an 
express  statement  in  regard  to  the  transaction;  for  instance,  if  a 
provision  dealer  expressly  says  that  he  does  not  warrant  certain 
provisions  to  be  wholesome,  the  buyer  then  buys  them  without 
any  implied  warranty  as  to  their  fitness  for  use. 

CAVEAT  EMPTOR,  meaning,  "Let  the  purchaser  beware," 
enters  largely  into  the  question  of  whether  a  vendor  has  been 
guilty  of  breach  of  warranty  or  not. 

Every  person  is  presumed  to  exercise  the  degree  of  skill  in  his 
business  transactions  which  is  customary  with  ordinarily  prudent 


WARRANTY.  125 

persons  in  like  transactions,  and  if  he  does  not  do  so,  implied 
warranties  will  not  protect  him,  as  the  law  declares  that  a  general 
warranty  does  not  extend  to  defects  inconsistent  therewith  of 
which  the  buyer  was  then  aware,  or  which  were  then  easily  dis- 
cernible by  him  without  the  exercise  of  peculiar  skill. 

This  general  rule,  however  correct  it  may  be,  is  somewhat 
difficult  of  application.  Ordinary  skill  or  discernment  might  be 
charged  against  a  person  familiar  with  the  subject  matter,  and 
not  against  a  person  unfamiliar;  e.  g.,  A  having  no  special  knowl- 
edge of  horses,  goes  to  a  dealer  and  tells  him  he  wants  a  sound 
horse.  He  picks  out  a  horse  apparently  sound,  but  which  the 
dealer  well  knew  was  diseased.  In  such  case  the  dealer  is  guilty 
of  breach  of  warranty,  notwithstanding  the  purchaser's  presence 
and  examination  of  the  horse. 

Suppose,  however,  that  a  professional  horseman  went  to  the 
dealer,  examined  and  selected  a  horse,  which  afterwards  proved  to 
be  diseased.  He  would  have  no  remedy  against  the  dealer  for 
breach  of  implied  warranty,  if  by  using  the  ordinary  skill  used 
by  people  in  his  line  of  business  he  could  have  discovered  the  con- 
dition of  the  horse. 

In  the  case  of  provisions,  if  a  customer  views  a  certain  box  of 
potatoes  and  tells  the  dealer  to  send  that  particular  box  of  pota- 
toes to  his  residence,  he  can  not  afterwards  claim  breach  of  war- 
ranty if  the  potatoes  are  unfit  for  use.  If,  on  the  contrary,  he 
merely  orders  a  box  of  potatoes  without  seeing  them,  the  dealer  is 
bound  under  his  general  warranty  to  furnish  sound  and  whole- 
some potatoes. 

BEEACH  OF  WAKKANTY.— When  a  vendor  violates  any 
of  the  warranties  above  mentioned  there  is  said  to  be  a  breach  of 
warranty  on  his  part,  and  he  is  so  far  responsible  for  such  breach 
of  warranty  that  the  buyer  has  a  remedy  against  him,  and  is 
entitled  to  recover  to  the  extent  of  the  injury  suffered. 

There  are  three  remedies  under  the  varying  conditions  of  the 
sale: 


126  COMMERCIAL   LAW. 

(1)  If  the  goods  are  neither  received  nor  paid  for,  the  buyer 
may  refuse  either  to  receive  or  pay  for  them. 

(2)  If  goods  are  received  and  paid  for,  he  may  sue  for  damages 
for  breach  of  the  warranty;  or 

(3)  If  goods  are  received  and  not  paid  for,  set  up  damage  as 
a  counter  claim  against  the  vendor's  action  for  the  price. 


TEST  QUESTIONS. 

1.  A  grower  sold  seed  in  packages  marked  "Large  Bristol  Cab- 

bage Seed;"  it  proved  to  be  cabbage  seed  of  an  inferior  and 
worthless  variety.  Has  the  vendee  any  right  of  action 
against  the  vendor? 

2.  Goods  sold  by  sample   were    delivered  to  the  vendee;    the 
vendee  on  inspecting  the  goods  found  that  they  did  not 
come  up  to  the  sample.      Discuss  his  right   to  reject    the 
goods. 

3.  A  furniture  dealer  assures  a  customer  that  a  certain  table 
is  of  walnut.     The  customer  is  familiar  with  the  wood  and 
knows  that  it  is  oak.     He,  however,  says  nothing  but  pur- 
chases the  table  and  afterward  claims  a  breach  of  warranty 
on  the  part  of  the  dealer  in  saying  that  the  table  was  wal- 
nut.    All    the    facts    being    shown,  discuss  his    right  to 
recover  against  the  dealer. 

4.  A  dealer  sells  a  plow  to  A  for  plowing  ordinarily  tiliatye 

soil.  It  is  so  made  that  the  share  will  not  stay  in  th,. 
ground.  Has  the  buyer  any  remedy? 

5.  A  steals  a  wagon  and  sells  it  to  B.      The  true   owner  com- 

pels B  to  restore  it.     What  remedy  has  B? 

6.  A  sells  a  wagon  to  B,  and  at  the  same  time  states  that  the 
title  to  the  wagon  is  in  dispute,  and   that  he  will   not  be 
responsible  for  a  return  of  the  price  if  it  should  be  deter- 
mined that  he  is  not  the  owner.     It  is  so  determined.    Has 
B  any  remedy? 


CHAPTER  XXIV. 

CONDITIONAL  SALES  AND  MORTGAGES. 

DEFINITION. — A  conditional  sale  is  a  sale  in  which  the 
title  is  vested,  defeated,  or  modified  upon  the  occurrence  of  an 
uncertain  event. 

These  events  may  be 

(1)  Precedent; 

(2)  Concurrent;  or 

(3)  Subsequent 

to  the  agreement  for  sale. 

(1)  If  A  agrees  that  he  will  hold  certain  goods  subject  to  B's 
order,  and   upon   the   condition   that  B  will   pay  a  debt  of    old 
standing,  the  title  passes  as  soon  as  B  has  paid  the  old  debt.     The 
payment  of  the  old  debt  is  the  condition  preceding  the  passing  of 
the  title. 

(2)  Conditions     concurrent    are    those   which    are    mutually 
dependent,  and  are  to  be  performed  at  the  same  time;  as  in  the 
case  of  cash  sales  the  delivery  of  the  goods  and  payment  of  the 
cash  are  concurrent  conditions. 

(3)  Conditions  subsequent  refer  to  a  future   event   upon   the 
happening  of  which  the  obligation  becomes  no  longer  binding;  as 
the  sale  of  land  to  become  void  if  the  title  of  the  vendor  proves 
to  be  defective. 

SALES  ON  TRIAL. — This  is  a  form  of  sale  on  condition  prec- 
edent, the  condition  being  that  the  article  sold  prove  satisfac- 
tory for  the  purpose  for  which  it  was  bought. 

Such  sales  are  usually  made  on  trial  for  a  certain  specified  time, 
and  if  the  time  elapses  and  the  purchaser  does  not  return  the 

(127) 


128  COMMERCIAL   LAW. 

goods,  the  sale  becomes  absolute;  or  in  the  absence  of  a  special 
agreement,  a  reasonable  time  for  trial  is  allowed.  What  is  reason- 
able time  depends  on  the  circumstances  in  each  case. 

In  such  sale  if  the  purchaser,  in  the  course  of  trying,  breaks, 
injures,  or  destroys  the  article,  the  question  at  once  arises,  Who 
must  bear  the  loss? 

The  rule  is  as  follows:  "If  the  purchaser  gave  the  article  such 
trial  only  as  articles  reasonably  fit  for  such  purposes  ordinarily 
stand  without  breaking,  the  loss  falls  on  the  vendor.  On  the 
contrary  if  the  purchaser  negligently  and  carelessly  or  improperly 
uses  the  article,  and  it  is  thereby  broken,  the  loss  falls  on  the  pur- 
chaser/' 

SALES  BY  SAMPLE  are  conditional  sales,  there  being  a 
precedent  condition  that  the  quality  of  the  bulk  shall  equal  the 
quality  of  the  sample. 

This  class  of  sales  has  been  discussed  under  the  head  of  War- 
ranty, and  it  will  be  noted  that  such  sales  are  both  sales  under 
warranty  and  conditional  sales. 

SALES  OF  GOODS  TO  ARRIVE.— In  long  ocean  voyages  it 
sometimes  happens  that  vendees  sell  out  their  business  or  change 
their  occupation,  while  the  goods  are  on  the  way. 

In  such  cases  it  is  customary  to  make  the  sale  of  the  goods 
conditional  upon  their  arrival.  The  sale  becomes  absolute  when 
the  goods  arrive.  If  they  never  arrive,  the  sale  is  void;  and  a 
reasonable  time  only  is  allowed  for  the  goods  to  arrive. 

A  sale  may,  of  course,  be  made  of  goods  to  arrive,  without  the 
condition,  which  will  be  absolute  in  the  beginning.  In  such  case 
the  buyer  must  take  his  chances.  If  the  goods  do  not  arrive,  the 
loss  falls  upon  him. 

If  no  agreement  is  made  at  all  in  regard  to  the  matter,  the  loss 
will  fall  on  the  buyer. 

A  CHATTEL  MORTGAGE  is  a  contract  by  which  specific 
personal  property  is  hypothecated  for  the  performance  of  an  act, 
without  the  necessity  of  a  change  of  possession. 


CONDITIONAL   SALES  AND   MORTGAGES.  J.29 

It  is  the  law  in  some  states,  and  was  so  under  the  old  common 
law  system,  that  chattel  mortgages  were  mere  sales  on  condition, 
but  our  modern  law  has  changed  the  form  to  agree  with  the  fact, 
and  made  mortgages  mere  liens  on  property  given  as  security, 
instead  of  indulging  in  the  fiction  of  a  sale,  and  depriving  the  true 
owner  of  the  possession  of  his  property. 

It  will  be  seen  that  a  mortgage  gives  a  special  lien,  and  that 
it  is  not  necessary  for  the  mortgagee  to  have  possession  of  the 
property. 

Of  course,  there  is  nothing  to  prevent  a  person  making  a  con- 
ditional sale  of  any  property  he  may  have,  with  the  understanding 
that  the  sale  is  to  become  void  upon  the  payment  of  some  amount, 
or  other  condition  fulfilled. 

IN"  WRITING. — A  chattel  mortgage  can  only  be  created, 
renewed,  or  extended  by  a  writing  executed  with  the  formalities 
required  in  the  case  of  a  grant  of  real  property;  that  is,  it  must  be 
acknowledged  before  some  officer  qualified  to  administer  oaths, 
arid  recorded  in  the  office  of  the  county  Recorder  of  the  county 
in  which  the  property  mortgaged  is  situated;  and  further  accom- 
panied by  an  affidavit  of  all  the  parties  thereto  that  it  was  made 
in  good  faith  and  without  any  design  to  hinder,  delay,  or  defraud 
creditors. 

FORM. — A  mortgage  of  personal  property  may  be  made  in 
substantially  the  following  fornv. — 

"This  mortgage,  made  the  1st  day  of  September,  in  the  year 
One  Thousand  Eight  Hundred  and  Ninety-eight,  by  A  B,  of 
Stockton,  California,  by  occupation  a  farmer,  mortgagor,  to  C 
B.  of  the  same  place,  by  occupation  a  grain  dealer,  mortgagee; 

"Witnesseth:  That  the  mortgagor  mortgages  to  the  mortgagee 
all  that  certain  personal  property  situated  and  described  as  fol- 
lows, to  wit: — 

"Being  one  two-horse  spring  wagon,  one  spring-tooth  harrow, 
one  Gorham  seed-sower,  all  situated  on  what  is  known  as  the  A  B 
ranch  near  Stockton,  in  San  Joaquin  County,  California,  as 
9 


130  COMMERCIAL   LAW. 

security  for  the  payment  to  said  C  D,  the  mortgagee,  of  One  Hun- 
dred ($100.00)  Dollars  on  the  1st  day  of  February,  in  the  year 
One  Thousand  Eight  Hundred  and  Ninety-nine,  with  interest 
thereon  at  the  rate  of  Ten  (10)  per  cent  per  annum,  according  to 
the  terms  and  conditions  of  a  certain  promissory  note,  ol  even 
date  herewith,  a  copy  of  which  is  as  follows: 

"September  1,  1898. 

"February  1,  1899,  after  date,  I  promise  to  pay  to  C  D,  or 
order,  One  Hundred  ($100.00)  Dollars  with  interest  at  the  rate  of 
ten  (10)  per  cent  per  annum,  from  date  hereof  until  paid. 

"A  B. 

"IN  WITNESS  WHEEEOF,  The  said  mortgagor  has  hereunto 
set  his  hand  the  day  and  year  first  above  written. 

"A  B." 

The  form  of  oath  annexed  to  the  mortgage  proper,  is  as  fol- 
lows : — 

State  of  California, 
County  of  San  Joaquin. 

A  B,  the  mortgagor  in  the  foregoing  mortgage  named,  and  C 
D,  the  mortgagee  in  said  mortgage  named,  each  being  duly  sworn 
each  for  himself,  doth  depose  and  say:  That  the  aforesaid  mort- 
gage is  made  in  good  faith  and  without  any  design  to  hinder, 

delay,  or  defraud  any  creditor  or  creditors. 

A  B, 

C  D. 

Subscribed  and  sworn  to  before  me  this  1st  day  of  September, 
1898,  in  the  County  of  San  Joaquin. 
[SEAL]  E  F,  Notary  Public. 

ACKNOWLEDGMENT  is  simply  for  the  purpose  of  afford- 
ing good  evidence  that  the  mortgagor  signed  the  mortgage,  and 
rendering  it  improbable  that  he  will  ever  dispute  his  signature. 

An  acknowledgment  is  taken  thus.  In  the  above  example  A 
B  appears  before  the  notary  personally  with  the  mortgage  fully 


CONDITIONAL    SALES   AND    MORTGAGES.  131 

drawn  up  and  signed  (or  he  may  sign  it  in  the  notary's  presence) 
and  says  to  the  notary,  "I  acknowledge  this  to  be  my  signature. 
I  signed  it  to  this  mortgage  for  the  purpose  of  mortgaging  the 
property  therein  described,"  or  some  such  like  words.  No  form 
of  words  is  required  so  long  as  A  B  sufficiently  admits  his  signa- 
ture and  its  purpose.  The  notary  will  then  affix  to  the  mortgage 
his  certificate  to  the  effect  that  A  B  acknowledged  to  him  the 
execution  or  signing  of  the  mortgage.  The  mortgage  may  then 
be  recorded. 

RECORDING. — So  far  as  the  parties  to  the  instrument  are 
concerned,  the  mortgage  would  be  valid  between  them  without 
being  recorded,  or  even  without  the  affidavit  annexed,  but  in 
order  to  protect  the  mortgagee,  against  other  creditors,  he  must 
see  that  the  mortgage  is  recorded  in  the  office  of  the  County 
Recorder  of  the  county  in  which  the  property  mortgaged  is  situ- 
ated, and  also  of  the  county  in  which  the  mortgagor  resides. 

If  the  property  be  partly  in  different  counties,  the  mortgage 
must  be  recorded  in  each  county. 

A  mortgagor  who  removes  the  mortgaged  property  from  the 
county  in  which  it  was  mortgaged,  without  the  written  consent  of 
the  mortgagee,  and  with  the  intent  to  defraud  the  mortgagee,  is 
guilty  of  the  crime  of  larceny,  and  may  be  punished  accordingly. 

As  the  only  effect  of  recording  is  to  give  notice  to  the  world 
that  the  property  has  been  mortgaged,  and  that  therefore  there  is 
a  lien  or  claim  upon  the  property  by  some  one,  other  than  the 
legal  owner,  it  follows  that  even  if  the  mortgage  is  not  recorded 
any  one  who  has  actual  notice  of  the  mortgage  can  not  claim  any 
right  to  the  property  as  against  the  mortgagee,  ofher  than  he 
would  have  had  if  the  mortgage  had  been  recorded. 

FORECLOSURE  is  regularly  had  by  bringing  a  suit  and  get- 
ting a  judgment  authorizing  the  sale  of  the  property  by  the  Sher- 
iff or  Constable. 

It  is  often  provided  in  the  mortgage,  however,  that  in  case  of 
default  the  mortgagee  may  take  possession  and  sell.  When  he 


132  COMMERCIAL   LAW, 

does  so  take  possession  there  is  no  necessity  for  suit,  but  in  either 
case  if  there  is  any  surplus  remaining  of  the  proceeds  of  the  sale 
after  the  mortgage  debt  is  satisfied,  such  surplus  must  be  returner! 
to  the  mortgagor. 

•LIMITATIONS  ON  MORTGAGE.— Chattel  mortgages,  as 
they  are  understood  in  our  modern  law,  have  been  confined  to  cer- 
tain classes  of  personal  property,  which  are  enumerated  by  statute. 

So  far  as  the  parties  are  concerned,  one  may  mortgage  to 
another  anything  he  may  choose,  but  as  against  creditors  a  mort- 
gagee wi.U  only  be  protected  when  he  holds  a  mortgage  upon 
property  such  as  is  especially  provided  for  by  statute. 

The  law  allows  such  mortgage  on  any  property,  except : 

1.  Personal  property  not  capable  of  manual  delivery; 

2.  Articles  of  wearing  apparel  and  personal  adornment; 

3.  The  stock  in  trade  of  a  merchant. 


TEST  QUESTIONS. 

1.  A  street  railway  company  purchased  a  cable  rope  from  the 

manufacturer  with  the  understanding  that  it  was  to  be 
returned  if  unsatisfactory.  The  cable  company  returned 
the  rope.  In  a  suit  for  the  price  of  the  rope  by  the  manu- 
facturer against  the  railway  company,  in  whose  favor 
should  the  case  be  decided? 

2.  A  farmer  brings  a  small    sack  of   wheat  as  a  sample  to  a 
dealer.     The  dealer  offers  a  certain  price  which  the  farmer 
agrees  to  accept.     He  leaves  the  sample  and  departs.     He 
afterwards  sells  the  grain  to  a  different  dealer.      Has  the 
first  dealer  any  remedy? 

3.  Suppose  in  the  above  case  the  grain  when  offered  for  deliv- 
ery proved  to  be  lighter   in    weight  in  proportion    to    the 
quantity  than  the  sample.     Discuss  the  question  of  breach 
of  warranty. 


CONDITIONAL   SALES   AND    MORTGAGES.  133 

4.  In  a  sale  of  goods  to  arrive,  under  the  warranty  that  they 
should  arrive,  it  was  found  upon  arrival    that   they  were 
totally  unfit   for   the   purpose  for  which   they  were  sold. 
Has  the  buyer  any  remedy? 

5.  A  signs  a  mortgage  in  favor  of  B,  but  it  is  neither  acknowl- 

edged nor  recorded.  B,  however,  holds  the  mortgage  and 
when  due,  requests  payment  A  refuses  to  pay  and  says 
that  he  did  not  sign  it.  Can  his  signature  be  proven  in 
any  way  so  as  to  make  him  liable? 

6.  A   mortgage  is   properly  made    out,  signed,  and   acknowl- 

edged, but  before  it  is  recorded  a  creditor  of  the  mort- 
gagor attaches  the  property.  Can  he  hold  it  against  the 
mortgage? 


CHAPTER  XXV. 
BAILMENTS. 

DEFINITION. — In  case  of  a  sale  of  personal  property  the 
ownership  is  transferred.  A  bailment,  however,  contemplates  a 
change  of  possession  without  change  of  ownership. 

The  subject  is  so  broad  that  it  is  difficult  to  confine  it  within 
the  bounds  of  a  definition,  but  the  following  will  be  sufficiently 
comprehensive  for  our  purpose: 

"A  bailment  is  a  delivery  of  some  chattel  by  one  party  to 
another  to  be  held  according  to  the  special  purpose  of  the  delivery, 
and  to  be  returned  when  that  special  purpose  is  accomplished." 

The  party  who  delivers  the  chattel  is  called  the  bailor,  and  the 
party  to  whom  the  delivery  is  made  is  called  the  bailee. 

DILIGENCE  EEQIJIRED  OE  THE  BAILEE.— It  will  be 
readily  understood  that  a  person  who  has  in  his  charge  property 
belonging  to  another  must  exercise  some  degree  of  care  in  its 
keeping,  and  the  law  has  endeavored  to  define  the  degree  of  care 
required  under  different  circumstances. 

It  is  to  be  noticed  first  that  there  are  three  kinds  of  bailments 
with  respect  to  the  purpose  thereof: 

(1)  Bailments  for  the  benefit  of  the  bailor  only; 

(2)  Eor  the  benefit  of  both; 

(3)  For  the  benefit  of  the  bailee. 

in  bailments  for  the  bailor's  sole  benefit,  as  where  A  requests 
another,  without  compensation,  to  hold  his  horse  for  a  few  min- 
utes, the  diligence  required  of  the  other  is  but  slight,  and  he  will 
not  be  chargeable  for  any  injury  happening  to  the  animal  unless 
he  is  extremely  careless  in  his  holding  of  the  horse. 
(134) 


BAILMENTS.  135 

Suppose,  however,  that  A  gives  B  a  sum  of  money  for  holding 
the  horse.  This  is  a  mutual  benefit.  A  has  his  horse  taken  care 
of,  and  B  has  the  money.  Here  the  law  requires  B  to  use  ordi- 
nary care,  and  if  through  the  lack  of  ordinary  care  the  horse  is 
injured,  B  is  liable. 

Suppose  again  that  B  borrows  the  horse  from  A  for  use,  not 
paying  any  consideration;  B  is  then  required  to  use  great  dili- 
gence in  the  care  of  the  horse,  as  the  bailment  is  for  his  own  bene- 
fit exclusively. 

DEGEEES  OF  NEGLIGENCE.— Corresponding  to  these  de- 
grees of  care  we  have  degrees  of  negligence  used  in  inverse  order: 
thus,  great,  ordinary,  and  slight  negligence. 

In  the  first  example  above,  B  is  liable  for  great  negligence 
only.  In  the  second  case  he  is  liable  if  he  is  ordinarily  negligent. 
In  the  third  case  he  is  liable  if  he  is  only  slightly  negligent. 

The  following  tabulation  will  show  this  relation  at  a  glance: 


For  benefit  of 

Care  required  by  bailee 

For  what  negligence 
liable 

Bailor 
Both 
Bailee 

Slight 
Ordinary 
Great 

Great 
Ordinary 
Slight 

This  is  the  general  rule  in  regard  to  bailments.  An  exception 
is  "common  carriers,"  which  subject  will  be  discussed  later. 

STANDAKD  OF  DILIGENCE.— While  the  law  uses  the 
words  "slight,  ordinary,  and  great"  in  the  attempt  to  fix  a  liability 
in  the  case  of  bailments,  it  will  be  readily  seen  that  this  standard 
is  a  most  variable  and  uncertain  one. 

What  would  be  ordinary  care  in  regard  to  one  transaction, 
might  be  the  grossest  negligence  in  regard  to  another. 

We  will,  therefore,  take  up  different  kinds  of  bailments,  a^" 
illustrate  how  these  degrees  are  applied. 


136  COMMERCIAL   LAW. 

DEPOSIT. — A  deposit  may  be  voluntary  or  involuntary,  and 
for  safe-keeping  or  for  exchange. 

A  voluntary  deposit  is  made  by  one  giving  to  another,  with  his 
consent,  the  possession  of  personal  property  to  keep  for  the  bene- 
fit of  the  former,  or  of  a  third  party.  The  person  giving  is  called 
the  depositor,  and  the  person  receiving  the  depositary. 

An  involuntary  deposit  is  made: 

(1)  By  the  accidental  leaving  or  placing  of  personal  property 
in  the  possession  of  any  person,  without  negligence  on  the  part 
of  its  owner;  or, 

(2)  In  cases  of  fire,  shipwreck,  inundation,  insurrection,  riot, 
or  like    extraordinary  emergencies,    by    the    owner    of    personal 
property  committing  it,  out  of  necessity,  to  the  care  of  any  per- 
son. 

Bailments  of  this  class,  if  without  compensation,  are  for  the 
benefit  of  the  bailor  only,  and  under  the  rule  the  bailee  is  only 
required  tc  exercise  slight  diligence,  and  is  liable  only  in  case  of 
great  negligence. 

Suppose  A  deposited  a  sack  of  coal  with  B.  B  would  only  be 
required  to  place  it  in  an  out-house;  while  if  A  deposited  a  dia- 
mond with  B,  slight  diligence  would  require  that  it  be  placed  in  a 
much  more  secure  place. 

LOST  PEOPEETY.— A  person  who  finds  property  is  not 
required  to  take  charge  of  it;  but  if  he  does  so,  he  may  claim  com- 
pensation for  all  expense  of  keeping  it,  and  a  reasonable  reward  in 
addition  thereto. 

Finding  is  therefore  a  bailment  for  the  benefit  of  both  parties, 
and  the  finder  must  use  ordinary  diligence  in  the  care  of  the 
property. 

USE  OF  PEOPEETY.— When  property  is  placed  on  deposit, 
the  bailee  has  no  right  to  use  the  property  in  any  way,  unless  the 
proper  care  of  the  property  necessarily  includes  its  use;  as  in 
deposit  of  a  horse,  the  horse  should  be  exercised  for  his  proper 


BAILMENTS.  137 

care,  but  such  use  must  stop  at  the  point  where  it  c  -<ises  to  benefit 
the  animal. 

RETURXJXG  PROPERTY.— A  depositary  must  deliver  the 
thing  to  the  person  for  whose  benefit  it  was  deposited,  o?i  demand, 
whether  the  deposit  was  made  for  a  specified  time  or  not,  pro- 
vided his  proper  charges  of  keeping,  if  any,  are  paid  or  offered. 

He  must  also  return  any  natural  increase  of  the  property  at 
the  same  time;  e.  g.,  if  he  is  given  one  hundred  sheep  on  deposit, 
he  must  return  not  only  the  original  one  hundred  sheep,  but  all 
others  by  natural  increase  which  he  may  have  when  demand  is 
made. 

The  property  must  be  returned  in  as  good  condition  as  the 
degree  of  care  required  and  the  natural  deterioration  by  lapse  of 
time  will  permit. 

LOA.N. — A  loan  for  use  is  a  contract  by  which  one  gives  to 
another  the  temporary  possession  and  use  of  personal  property, 
and  the  other  agrees  to  return  the  same  thing  to  him  at  a  future 
time  without  reward  for  its  use. 

This  loan  for  use,  of  course,  does  not  transfer  the  title,  and 
any  increase  there  may  be  during  the  period  of  the  loan  must  be 
returned  to  the  lender. 

A  borrower  being  a  bailee  for  his  own  benefit,  must  use  great 
care  of  the  thing  lent,  and  is  correspondingly  liable  for  any  slight 
negligence. 

In  such  case  the  borrower  is  bound  to  use  as  much  skill  in  the 
care  of  the  thing  lent  as  he  causes  the  lender  to  believe  him  to 
possess;  e.  g.,  if  he  borrows  a  horse  to  drive,  telling  the  lender  that 
he  is  a  skilful  driver  and  understands  thoroughly  the  care  of 
horses,  when  in  fact  he  knows  nothing  of  horses  or  of  driving,  he 
is  liable  for  damage  to  the  horse  if  caused  by  his  inexperience, 
no  matter  how  much  effort  he  makes  to  use  the  animal  properly. 

A  borrower  must  repair  all  injuries  to  the  thing  lent,  occa- 
sioned by  his  negligence,  however  slight,  though  he  is  not  respon- 


138  COMMERCIAL    LAW. 

sible  for  inevitable  accident  or  "act  of  God,"  as  the  killing  of  a 
horse  by  lightning. 

He  must  not  use  an  article  for  any  purpose  other  than  that 
for  which  it  was  borrowed,  and  must  not  relend  it  to  another. 

The  lender  of  a  thing  for  use  may  at  any  time  require  its 
return,  even  though  he  lent  it  for  a  specified  time  or  purpose,  but 
if  the  borrower  thereby  suffers  :njury,  the  lender  must  indemnify 
him  for  such  loss. 

The  borrower  must  return  the  article  without  demand  when 
the  time  has  expired,  or  the  purpose  is  accomplished. 

PLEDGE. — A  pledge  is  a  deposit  of  personal  property  by  way 
of  security  for  the  performance  of  another  act.  This  is  a  kind 
of  bailment  in  which  each  party,  the  bailor  and  the  .  bailee, 
receives  a  benefit,  the  bailor  receiving  some  consideration  for  the 
pledge,  and  the  bailee  holding  the  pledge  as  security  for  some- 
thing which  he  has  given. 

Anything  which  is  capable  of  delivery  may  be  pledged,  and  in 
order  to  make  a  valid  pledge  the  property  must  be  actually  deliv- 
ered into  the  possession  of,  or  placed  under  the  control  of,  the 
pledgee. 

The  degree  of  care  required  of  the  pledgee  being  ordinary,  the 
pledgee  is  liable  for  any  ordinary  negligence. 

He  is  not  liable  for  slight  negligence,  hence,  under  the  same 
circumstances  a  pledgee  can  use  the  thing  in  his  possession  Avith 
less  care  than  a  borrower,  and  still  not  be  liable  for  any  damage 
incurred;  as  in  the  case  of  the  borrower,  it  depends  a  good  deal 
on  the  nature  of  the  property  pledged,  and  his  own  representa- 
tions as  to  his  qualifications  and  facilities  for  taking  care  of  the 
article. 

For  instance,  in  the  pledge  of  a  horse,  if  he  represents  to  the 
pledger  that  he  understands  horses  and  has  a  good  barn,  and  other 
conveniences  for  the  proper  care  of  the  animal,  when  in  fact  he 
has  neither  skill  nor  accommodations,  he  will  be  guilty  of  ordi- 


BAILMENTS.  139 

nary  negligence  in  case  the  horse  suffers  from  the  lack  of  ordinary 
care  and  shelter. 

As  in  the  case  of  property  loaned  or  placed  on  deposit,  the 
increase  of  the  property  pledged  must  be  returned  with  the  prop- 
erty; and  it  is  also  a  rule  of  law  that  the  increase,  if  any,  becomes 
a  part  of  the  pledge,  and  is  considered  as  pledged  with  the  original 
property. 

DISTINGUISHED  FHOM  MORTGAGE.— A  pledge  of  per- 
sonal property  and  a  mortgage  of  personal  property  are  alike  in 
that  they  are  both  given  as  security  for  the  performance  of  some 
act;  but  they  are  radically  different  in  that  while  the  pledged 
property  is  actually  given  into  the  possession  or  control  of  the 
pledgee,  in  the  case  of  the  mortgage,  the  mortgaged  property  is 
not  given  into  the  possession  or  control  of  the  mortgagee,  but  the 
lien  on  the  property  is  evidenced  by  a  writing  called  the  "mort- 
gage." 

SALE  OF  PLEDGE.— \Vhen  performance  of  the  act  for  which 
a  pledge  is  given  as  security  is  due,  the  pledgee  may  collect"  what 
is  due  by  sale  of  the  pledged  property. 

Before  he  can  sell,  however,  he  must 

(1)  Make  demand  on  the  pledgor  for  performance  of  his  obli- 
gation. 

(2)  If  performance  is  refused,  the  pledgee  must  give  reasonable 
notice  to  the  pledgor  of  the  time  and  place  of  the  sale. 

(3)  A  sale  must  be  by  public  auction. 

If  the  pledgor  demands  that  the  pledge  be  sold  even  before  the 
obligation  is  due,  the  pledgee  must  sell  the  article  if  it  can  be  sold 
for  a  price  sufficient  to  satisfy  his  claim. 

If  the  price  received,  less  the  expenses  of  the  sale,  is  more 
than  enough  to  pay  the  debt,  the  pledgee  must  pay  the  surplus 
to  the  pledgor. 

The  pledgee  has  no  right  to  consider  the  debt  canceled  and 
retain  the  pledged  property  in  payment.  He  must  sell. 


140  COMMERCIAL   LAW. 

HIRING. — Hiring  is  a  bailment  by  which  one  gives  to  another 
the  temporary  possession  and  use  of  property  for  reward.  This 
being  a  bailment  for  the  benefit  of  both  parties  requires  ordinary 
care  on  the  part  of  the  bailee,  and  he  is  liable  for  ordinary  negli- 
gence, and,  as  we  have  previously  illustrated,  what  is  ordinary  care 
depends  upon  the  circumstances  in  each  case. 

'  The  bailee  must  repair  all  injuries  or  deteriorations  caused  by 
his  ordinary  negligence. 

When  a  thing  is  hired  for  a  particular  purpose,  the  hirer  must 
not  use  it  for  any  other  purpose,  and  if  he  does,  the  letter  may 
bold  him  responsible  for  its  safety  during  such  use  in  all  events, 
and  may  terminate  the  hiring;  so  that  the  rule  of  ordinary  dili- 
gence only  applies  where  the  bailee  uses  the  thing  for  the  particu- 
lar purpose;  e.  g.,  suppose  A  hires  a  horse  to  drive  to  Lodi.  In- 
stead of  driving  to  Lodi  he  drives  in  an  opposite  direction.  The 
horse  falls  through  a  bridge  and  is  killed  without  any  fault  of  A. 
He  is  nevertheless  liable  for  the  loss  of  the  horse  because  he  vio- 
lated the  provisions  of  his  contract  of  hiring. 

The  hirer  is  not  liable  for  any  repairs  or  damage  caused  by 
ordinary  wear  and  tear,  or  such  as  would-  ordinarily  happen 
vrh  ether  the  hiring  was  had  or  not. 

As  in  the  example  above,  suppose  that  in  driving  the  horse  in 
a  proper  manner  a  shoe  was  lost,  the  hirer  would  not  be  liable  to 
pay  for  having  the  horse  shod,  and  in  fact,  if  necessary  to  save 
the  horse  from  lameness,  it  is  the  hirer's  duty  to  have  thf  horse 
shod  at  the  nearest  shop,  and  VIP  may  deduct  *hc  |jrice  from  the 
amount  of  his  hiring 

HIRE  OF  CERVICES.— This  is  a  delivery  of  goods  to  another 
for  *he  purpose  of  having  some  work  or  service  done  or  performed 
upon  them,  for  which  compensation  is  to  be  paid. 

It  is  a  bailment  for  the  benefit  of  both  bailor  and  bailee,  and 
the  rule  of  ordinary  diligence  and  liability  for  ordinary  negligence 
applies  to  its  full  extent. 


BAILMENTS.  141 

In  arriving  at  what  is  ordinary  diligence,  however,  in  this  bail- 
ment perhaps  more  than  in  any  other,  the  character  of  the  services 
to  be  performed  must  be  carefully  considered. 

SKILL  REQUIRED. — Ordinary  care  in  such  a  case  consists 
in  the  handling  of  the  article  with  such  care  as  ordinarily  skilful 
workmen  in  that  particular  line  bestow  on  work  of  like  nature. 

EXAMPLE. — A  jeweler  in  repairing  a  watch,  is  only  required 
to  be  an  ordinarily  good  watchmaker  in  order  to  escape  liability. 
If  he  is  not  an  ordinarily  good  workman  in  that  line  it  makes 
no  difference  how  hard  he  may  try  to  perform  the  work  properly, 
he  is  liable  if  he  does  not  do  it  as  well  as  an  ordinarily  skilful 
watchmaker  would  perform  the  work. 

A  watchmaker  or  diamond  cutter  is  held  to  no  greater  degree 
of  care  in  his  line  of  work  than  a  street  contractor  who  gravels 
streets. 

The  mere  fact  that  there  may  be  more  men  wno  can  properly 
gravel  streets  than  there  are  who  can  repair  watches  or  cut  dia- 
monds, makes  no  difference  in  the  degree  of  care  required  in  the 
services  performed. 

"Care"  should  be  distinguished  from  "skill."  A  diamond  set- 
ter requires  a  higher  degree  of  skill  and  training  in  order  to  be 
ordinarily  proficient  in  his  business  than  a  street  contractor,  but 
the  degree  of  care  is  the  same. 

BAILOR'S  INSTRUCTIONS.— If  a  bailor  gives  the  work- 
man particular  instructions  as  to  how  to  perform  certain  work 
upon  the  article,  and  the  workman  endeavors  to  prosecute  the 
work  under  these  instructions  and  the  article  is  damaged  or 
destroyed,  he  is  not  liable  in  damages,  unless  he  is  grossly  negli- 
gent. 

On  the  other  hand,  if  the  workman  deviates  from  his  instruc- 
tions in  a  material  particular,  and  the  article  is  thereby  damaged, 
he  is  liable  for  all  loss. 

LIEN. — A  person  who  alters  or  repairs  any  article  of  personal 


142  COMMERCIAL   LAW. 

property  at  the  request  of  the  owner,  has  a  lien  upon  it  for  his 
reasonable  charges  for  work  done  and  materials  furnished,  and 
may  retain  possession  of  the  article  until  such  charges  are  paid, 
and  if  the  charges  are  not  paid  within  two  months  after  the 
owner  is  notified  that  the  work  is  done,  the  bailee  may  proceed  to 
sell  the  property  at  public  auction,  after  notice  given,  and  apply 
the  proceeds  of  the  sale  to  his  charges  and  costs,  giving  the  remain- 
der, if  any,  to  the  owner. 

COMMISSION  is  a  contract  of  bailment  by  which  the  bailee 
undertakes  without  pay  to  do  some  -act  for  the  bailor.  This  being 
for  the  bailor's  benefit  exclusively  the  bailee  is  only  required  to 
exercise  slight  diligence,  and  is  liable  for  damage  only  in  case  he 
is  guilty  of  great  negligence;  e-  (J-,  A  is  going  to  a  store  for  gro- 
ceries, and  his  neighbor  requests  him  to  bring  him  a  sack  of  flour. 
This  is  a  commission,  and  A  is  not  responsible  for  the  loss  of  the 
sack  of  flour  unless  it  occurred  through  his  great  negligence. 

Such  transactions  are  commonly  called  "running  errands." 
Commission  differs  from  hire  of  services  only  in  the  matter  of 
compensation  and  liability  incurred. 

HIEE  OF  CUSTODY.— This  is  a  class  of  bailments  in  which 
there  is  no  service  to  be  performed,  but  simply  proper  care,  and 
keeping  the  property  from  harm,  and,  as  in  like  cases  for  the  bene- 
fit of  both  parties,  ordinary  care  is  required,  and  the  bailee  is 
liable  for  ordinary  negligence. 

Under  this  class  may  be  noted  innkeepers,  commission  mer- 
chants, warehousemen,  and  agistors,  those  who  take  in  domestic 
animals  for  pasturage. 

These  have  been  treated  generally  under  the  head  of 
"Deposit." 

In  all  of  the  above-mentioned  where  goods  are  left  in  custody 
for  hire,  the  bailee  must  use  ordinary  care,  and  is  liable  for  ordi- 
nary negligence. 

INNKEEPERS.— The  term  "innke^er"  includes  hotel  keep- 
ers, board  and  lodging  house  keepers. 


BAILMENTS.  143 

As  lias  been  stated  they  are  liable  only  for  ordinary  negligence, 
and  the  law  has  made  some  special  provisions  applicable  to  the 
peculiar  character  of  their  business,  and  affecting  their  liability. 

If  the  innkeeper  keeps  a  fire-proof  safe  and  notifies  his  guests 
that  he  keeps  such  a  safe,  and  that  he  will  not  be  liable  for  articles 
of  great  value  and  small  compass,  such  as  money  and  jewelry, 
unless  placed  therein,  he  may  thus  excuse  himself,  unless  he  con- 
tributes to  such  loss  himself,  such  as  by  unlocking  the  door  of  the 
guest's  room  and  leaving  it  open. 

GUESTS. — A  guest  is  any  proper  person  who  applies  for 
entertainment  and  offers  to  pay  for  the  same. 

It  may  be  seen  from  a  careful  consideration  of  the  above  defi- 
nition, that  an  innkeeper  is  not  required  to  receive  drunken, 
insane,  or  disreputable  people,  or  those  afflicted  with,  contagious 
diseases,  or  those  who  would  injure  his  business  in  any  way;  and 
he  may  demand  pay  in  advance. 

He  must  receive  guests  at  any  hour  of  the  day  or  night,  and  if 
he  refuses  to  do  so  he  is  not  only  liable  to  the  injured  party  for 
any  damage  he  may  suffer,  but  is  also  guilty  of  a  misdemeanor  and 
can  be  punished  criminally. 

On  the  other  hand,  a  guest  who  obtains  board  and  lodging  at 
an  inn,  without  paying  therefor,  or  who  absconds  without  paying, 
is  guilty  of  a  misdemeanor. 

LIEN. — Innkeepers  have  a  lien  upon  the  baggage  and 
other  personal  property  of  their  guests  for  their  proper 
charges,  and  may  retain  possession  of  such  property.  If  'it 
remains  unclaimed  for  a  period  of  sixty  days,  he  may  sell  the 
property  at  public  auction,  and  if  there  be  any  surplus  after 
paying  his  charges  and  the  costs  of  sale,  it  must  be  returned 
to  the  owner  of  the  property. 

TEST  QUESTIONS. 

1.  Name  three  kinds  of  bailments,  and  the  degree  of  diligence 
and  negligence  corresponding  to  each. 


144  COMMERCIAL   LAW. 

2.  A   delivers   a  valuable   race   horse  to  B  for   safe   keeping, 
under  the  agreement  that  B  may  have  the  use  of  him  in 
return  for  his  care  and  feed.     B  puts  the  horse  into  a  plow 
team  and  works  him  in  an  ordinarily  careful  manner.     The 
horse,  however,  is  so  injured  as  to  unfit  him  for  racing  pur- 
poses.    Discuss  the  right  of  A  to  recover  damages. 

3.  A  borrows  a  wheelbarrow.      While    in  his    possession  it  is 

consumed  by  fire.     Discuss  his  liability  for  its  loss. 

4.  A  leaves  a  valise  containing  valuable  articles  in  B's  store, 
without  compensation  to  B.     A  thief  enters  in  A's  absence 
and  steals  the  valise.     Illustrate  under  what  circumstances 
B  would  or  would  not  be  liable  for  the  loss. 

5.  A  man  demands  accommodation  at  a  hotel.     He  seems  in 
every  way  a  desirable  guest,  but  a  large  number  of  the  other 
guests  threaten  to  leave  the  hotel  on  account  of  their  per- 
sonal dislike  of  this  guest.     Would  the  landlord  be  justi- 
fied in  refusing  him  accommodation? 

6.  A  pledges  a  flock  of  sheep  to  B.     B  keeps  them  for  a  year, 

and  shears  the  wool  from  them  at  proper  times.  He 
returns  them  with  the  same  amount  of  wool  on  the  sheep 
as  there  was  when  he  received  them,  but  keeps  the  wool  he 
has  shorn  off.  Will  the  law  protect  him  in  so  doing? 

7.  A  wishes  to  pledge  one  hundred  sacks  of  wheat  in  a  ware- 
house.    He  endorses  the  warehouse  receipt  to  B  as  security. 
Is  this  such  a  delivery  of  the  wheat  to  B  as  will  constitute 
a  pledge? 


CHAPTER  XXVI. 

COMMON  CAEEIEES. 

DEFINITION. — Every  one  who  offers  to  the  public  to  carry 
persons,  property,  or  messages,  as  a  business  and  for  hire  (except 
telegraphic  and  telephonic  messages),  is  a  common  carrier  of  what- 
ever he  thus  offers  to  carry. 

Railroad,  steamboat,  and  stage  companies  are  common  carriers 
of  freight  and  passengers,  as  well  as  expressmen,  hackmen,  dray- 
men, and  others  who  offer  as  a  business  to  carry  goods  or  passen- 
gers for  hire. 

CARRIEES  OP  FEEIGHT.— A  common  carrier  must,  if  able 
to  do  so,  accept  and  carry  whatever  is  offered  to  him  at  a  reason- 
able time  and  place  of  a  kind  that  he  undertakes  or  is  accustomed 
to  carry,  and  must  not  give  preference  in  time,  price,  or  otherwise 
to  one  person  over  another. 

He  may  demand  his  pay  in  advance,  however,  and  may  refuse 
to  carry  unless  it  is  forthcoming. 

The  obligation  resting  upon  a  common  carrier  being  to  accept 
only  such  kind  of  freight  as  he  undertakes  or  is  accustomed  to 
carry,  an  expressman  could  not  be  compelled  to  carry  heavy  iron 
or  bridge  timbers  upon  his  wagon,  that  not  being  in  the  line  of 
his  business. 

The  rule  that  the  carrier  must  not  give  preference  in  price  is 
made  to  protect  the  public,  and  not  the  carrier,  so  that  it  is  held 
that  while  a  carrier  can  not  charge  one  person  a  higher  rate  than 
what  is  usual  or  reasonable,  still  he  may  carry  for  another  person 
at  a  lower  rate  than  what  is  reasonable,  or  without  compensation, 

(H5) 
10 


146  COMMERCIAL   LAW. 

if  he  chooses;  and  a  further  exception  to  the  rule  is,  that  he  must 
always  give  preference  in  time  to  the  United  States  or  to  a  state. 

A  common  carrier  must  start  at  such  time  and  place  as  he 
announces  to  the  public,  unless  detained  by  accident  or  the  ele- 
ments, or  in  order  to  connect  with  carriers  on  other  lines  of  travel. 

LIABILITY. — Common  carriers  carrying  goods  for  compen- 
sation would,  under  the  general  law  of  liabilit}',  he  liable  only  for 
ordinary  negligence,  but  owing  to  the  extensive  and  important 
interest  affected  by  the  business  of  common  carriers  and  the  great 
injury  to  the  public  in  general  where  there  is  any  negligence  upon 
the  part  of  the  carrier,  in  the  course  of  the  business  of  carriage, 
the  law  has  applied  a  very  strict  rule  to  the  Common  Carrier. 

It  is  this:  "A  common  carrier  is  absolutely  liable  for  the  safety 
and  proper  carriage  of  freight  without  regard  to  any  degrees  of 
care  or  negligence." 

He  is  made  an  insurer  of  the  goods  confided  to  his  care.  To 
this  general  rule,  however,  there  are  these  exceptions. 

He  is  not  liable  for  loss  or  damage  caused  by 

(1)  An  inherent  defect  or  spontaneous  action  of  the  property 
itself. 

(2)  The  act  of  a  public  enemy. 

(3)  The  act  of  the  law;  or 

(4)  Any  irresistible,  superhuman  cause. 

Thus,  if  fruit  is  given  him  which  must  necessarily  spoil  before 
it  could  reach  its  destination,  he  is  relieved  of  liability,  or  if  the 
carriage  is  stopped  and  the  goods  taken  by  a  Spanish  army;  or 
where  the  laws  of  the  State  forbid  the  sale  of  such  goods,  and 
they  are  seized  by  an  officer;  or  where  the  carriage  is  struck  by 
lightning  and  the  goods  thereby  destroyed. 

LIMITATION  ON  LIABILITY.— The  obligations  of  a  com- 
mon carrier  can  not  be  limited  by  general  notice  on  his  part,  but 
may  be  limited  by  special  contract. 

Any  limitation,  however,  whether  by  contract  or  not,  unlesa 


COMMON    CARRIERS.  147 

manifested  by  the  signature  of  the  shipper,  must  be  public,  law- 
ful, uniform,  and  reasonable,  otherwise  it  is  void. 

The  following  are  common  limitations  which  are  allowable: 

A  carrier  may  print  upon  his  tickets,  shipping  receipts,  or 
other  like  documents,  specifying  the  rate  of  charge,  that  he  will 
not  be  liable  for  damage  to  breakable  articles,  unless  properly 
packed;  that  he  will  not  carry  high  explosive  substances;  or  that 
he  will  not  be  liable  for  loss  of  articles  of  small  compass  and  great 
value,  unless  he  is  informed  at  the  time  of  their  receipt  of  the 
value  thereof.  These  are  all  reasonable  limitations  and  are  held 
to  be  lawful. 

COMPENSATION.— At 'all  times  it  has  been  held  that  the 
carrier  is  entitled  to  a  reasonable  compensation.  However,  as  the 
word  "reasonable"  is  a  very  elastic  term,  the  modern  statutes  pro- 
vide that  common  carriers  shall  not  charge  more  than  a  certain 
fixed  rate,  under  penalty  if  they  do  so.  He,  of  course,  is  at  liberty 
to  charge  less  than  the  established  rate,  should  he  so  desire. 

DELIVERY. — What  constitutes  delivery  is  as  important  a 
question  in  the  case  of  delivery  by  a  common  carrier,  as  it  is  in  the 
case  of  a  sale  of  personal  property,  and  there  is  a  great  deal  of  law 
upon  the  subject. 

A  general  statement  of  the  law,  however,  is  about  as  follows: 
"A  delivery  is  complete  when  the  goods  are  placed  in  the  posses- 
sion of  the  consignee,  or  are  placed  in  such  a  position,  that  he  is 
enabled  to  take  possession  at  any  time." 

Thus,  it  is  held  that  for  the  purpose  of  fixing  the  time  when 
the  goods  are  delivered,  a  railway  company  may,  after  the  arrival 
of  certain  goods  at  the  station,  notify  the  consignee  that  the  goods 
have  arrived  and  that  after  thirty-six  hours,  or  other  reasonable 
time,  from  the  time  of  notice,  the  goods  will  be  held  by  the  carrier 
as  the  agent  of  the  consignee,  and  as  a  warehouseman,  and  not  as 
carrier. 

This  applies  particularly  where  it  is  not  the  custom  or  busi- 


148  COMMERCIAL   LAW. 

ness  of  the  carrier  to  deliver  goods  at  the  residence  or  place  of 
business  of  the  consignee. 

Where,  however,  it  is  customary,  as  is  often  the  case  with 
stage  and  express  companies,  for  delivery  to  be  made  at  the  resi- 
dence or  place  of  business  of  the  consignee,  the  carrier  is  liable 
as  a  carrier,  until  he  so  delivers  the  goods. 

It  is  to  be  noted  that  when  the  carrier  ceases  to  be  a  carrier 
and  becomes  a  warehouseman,  as  stated  above,  he  is  then  liable 
only  for  ordinary  care  and  ordinary  negligence. 

If  a  common  carrier  accepts  freight  for  a  place  beyond  his 
usual  route  he  must,  unless  he  stipulates  otherwise,  deliver  it  at 
the  end  of  his  route  to  some  other  competent  carrier  for  forward- 
ing; and  his  liability  ceases  upon  such  delivery. 

The  carrier  has  a  lien  on  the  goods  in  his  custody  until  all 
his  proper  charges  are  made,  and  may  refuse  to  deliver  until  the 
charges  are  paid. 

INTERSTATE  COMMERCE  LAW.— As  the  railroad  com- 
panies are  the  most  important  of  common  carriers  in  some 
respects,  and  as  single  companies  operate  their  lines  of  railway 
through  many  different  states,  the  Congress  of  the  United  States 
has  enacted  a  law  to  regulate  traffic  by  common  carriers,  between 
states,  known  as  the  Interstate  Commerce  Law. 

It  is  intended  to  be  uniform  in  its  application.  Its  provisions 
are  in  general  designed  to  protect  shippers  from  exorbitant  prices, 
and  insure  the  safe  carriage  of  their  property. 

The  following  are  a  few  of  its  more  important  provisions: 

(1)  The  provisions  of  this  act  shall  apply  to  all  common  car- 
riers, contracting  to  carry  from  one  state  or  territory  to  another, 
or  through  other  states  and  territories  to  a  foreign  country,  or 
from  foreign  countries  to  any  state  of  the  United  States,  but  does 
not  apply  to  transportation  wholly  within  one  state. 

(2)  All  charges  must  be  just  and  reasonable,  and  no  discrim- 
inations made   between   large  or  small   shippers,  or  regular  and 


COMMON    CARRIERS.  149 

irregular  shippers;  no  greater  charges  proportionately  for  a  "short 
haul"  than  a  "long  haul/'  under  similar  circumstances,  must  he 
made. 

(3)  A  carrier  must  post  conspicuous  schedules  of  rates  in  every 
depot.,  station,  or  office  where  passengers  or  freight  are  received 
for  transportation,  and  such  published  rates  must  not  be  deviated 
from  unless  ten  days'  public  notice  be  given  of  advance  in  rates. 
All  such  rates  or  schedules  must  be  filed  with  the  United  States 
Commerce  Commissioner,  and  in  case  of  unlawful  deviations  an 
injunction  may  be  issued  to  compel  obedience  to  the  law. 

(4)  The  Commissioner  has  power  to  inspect  and  is  required  to 
inspect  the  books  of  all  such  carriers,  and  make  reports  yearly  to 
the  Secretary  of  the  Interior  and  to  Congress. 

A  CARRIER  OF  PERSONS  for  reward  must  use  the  utmost 
care  and  diligence  for  their  safe  carriage,  and  is  not  excused  for 
default  in  this  respect  by  any  degree  of  care. 

From  the  above  statement  we  understand  that  the  carrier  of 
passengers  is  under  the  same  liability  as  a  carrier  of  freight,  and 
is,  like  him,  an  exception  to  the  general  rules  of  liability. 

A  carrier  of  persons  for  reward  then  is  absolutely  liable  for 
any  accident  which  may  happen  to  his  passengers,  unless  caused 
by  their  negligence  or  some  irresistible  cause  which  the  carrier 
could  not  have  foreseen  and  guarded  against,  such  as  a  stroke  of 
lightning  killing  a  passenger,  or  the  attack  of  a  public  enemy. 

The  law  is  very  strict  and  goes  to  extreme  lengths  in  this  mat- 
ter, as  it  should  do  in  protecting  the  lives  of  the  public.  Thus: 
"A  carrier  must  not  overcrowd  or  overload  the  vehicle,  and  must 
give  all  passengers  such  accommodations  as  are  usual  and  reason- 
able; must  travel  at  a  reasonable  rate  of  speed  without  unreason- 
able delay  or  deviation,"  and  other  similar  provisions  regulate  the 
conduct  of  the  carrier's  business. 

It  is  presumed  in  this  discussion  that  we  are  dealing  with 
Common  carriers  of  passengers  for  reward.  A  carrier  of  persons 


150  COMMERCIAL   LAW. 

without  reward  is  only  required  to  use  ordinary  care  and  diligence 
for  their  safety. 

EIGHTS  AND  DUTIES.— A  carrier  has  a  right  to  enforce 
such  regulations  in  regard  to  the  conduct  of  his  business  as  are 
lawful,  public,  uniform,  and  reasonable. 

Thus,  he  may  require  the  fare  to  be  paid  in  advance,  and  also 
that  each  passenger  must  purchase  a  ticket  before  entering  the 
carriage,  and  if  he  fails  to  do  so,  may  require  him  to  pay  ten  per 
cent  additional  after  he  boards  the  carriage. 

If  a  passenger  refuses  to  pay  his  fare  or  surrender  his  ticket 
on  request,  the  employees  of  the  earner  may  put  him  and  his  bag- 
gage out  of  the  carriage,  using  no  unnecessary  force,  at  any  usual 
stopping  place,  or  near  any  dwelling  house  on  stopping  the  car- 
riage. 

"Usual  stopping  place"  means  a  regular  station  where  people 
reside.  A  water  tank  at  which  a  train  usually  stopped  for  water, 
was  held  nevertheless  not  to  be  a  usual  stopping  place  under  this 
provision. 

A  passenger  if  ejected  at  a  usual  stopping  place,  may  re-enter 
on  offering  to  pay  Ms  fare  from  the  place  he  originally  boarded 
the  carriage,  or  on  producing  his  ticket. 

If  ejected  at  a  dwelling  house,  however,  he  would  have  no  right 
to  re-enter,  it  not  being  a  place  where  passengers  are  received. 

WHO  ARE  PASSENGERS.— Every  proper  person  who  ten- 
ders the  proper  fare  must  be  accepted  as  a  passenger  by  the  carrier. 

The  general  statement  of  the  law  is  practically  the  same  as  in 
the  case  of  an  innkeeper,  but  in  the  application  there  is  a  differ- 
ence. The  innkeeper,  it  will  be  remembered,  is  not  required  to 
receive  persons  afflicted  with  contagious  or  infectious  diseases,  or 
persons  of  bad  character,  or  who  otherwise  would  bring  disrepute 
upon  his  house,  or  cause  a  loss  of  business. 

The  law  presumes  that  there  are  places  for  the  care  of  persons 
suffering  from  diseases,  and  places  where  persons  of  bad  character 


COMMON   CARRIERS.  151 

may  find  accommodation,  but  it  does  not  raise  any  such  presump- 
tion in  the  case  of  a  common  carrier. 

So  far  as  he  is  concerned  he  must  accept  even  persons  afflicted 
with  diseases,  although  he  might  be  required  to  provide  separate 
apartments  for  them. 

He  must  not,  however,  accept  drunken  and  disorderly  persons 
who  would  be  dangerous  to  the  life  and  limb  of  other  passengers. 

He  can  not  refuse  to  accept  any  person  on  account  of  his  bad 
character  or  reputation,  so  long  as  he  conducts  himself  properly. 
Neither  can  he  refuse  to  accept  a  person  because  of  his  blindness 
or  physical  deformity. 

In  some  of  the  southern  states,  special  statutes  have  been 
passed  requiring  railroad  companies  to  provide  separate  cars  for 
colored  persons,  and  when  such  cars  are  so  provided,  the  colored 
persons  can  not  ride  in  the  same  car  with  white  persons. 

In  California  and  in  the  western  states  generally,  there  is  no 
such  law,  and  other  races,  such  as  the  negroes  or  Chinese,  may 
ride  in  the  same  car  with  white  persons,  upon  complying  with  the 
same  conditions. 

A  person  who  is  not  lawfully  on  board  the  carriage,  or  who 
rides  in  the  part  not  designated  for  passengers,  such  as  the  brake- 
beam  of  a  car,  can  not  claim  any  damages  in  case  of  injury  to 
their  persons,  except  in  case  where  the  employees  of  the  carrier 
resort  to  unnecessary  force  in  ejecting  him,  and  thereby  injure 
him;  the  rule  being,  as  stated  above,  that  the  carrier  must  use  no 
unnecessary  force  in  ejecting  any  one  from  the  carriage. 

CONTRIBUTORY  NEGLIGENCE.— As  we  have  seen,  a 
common  carrier  of  persons  may  make  rules  for  the  conduct  of  his 
business,  and  may  require  passengers  to  conform  to  them,  if  they 
are: 

(1)  Lawful; 

(2)  Public; 

(3)  Uniform;  and 

(4)  Reasonable. 


152  COMMERCIAL    LAW. 

Under  these  provisions,  a  railroad  company  usually  posts 
notices  requiring  passengers  not  to  stand  on  the  platform;  to 
keep  heads  and  arms  inside  of  car  windows;  not  to  get  on  or  off 
the  train  while  in  motion,  etc. 

If  a  person  is  injured  while  violating  any  such  regulations  as 
the  above,  he  is  said  to  be  guilty  of  contributory  negligence;  that 
is,  he  contributes  to  his  own  injury,  and  the  company  is  not  liable 
in  damages  where  such  negligence  on  the  part  of  the  passenger 
can  be  shown. 

A  passenger  is  also  guilty  of  contributory  negligence  if  he 
does  any  act  which  contributes  to  his  own  injury,  even  though  not 
in  violation  of  some  regulation  of  the  carrier. 

He  might  in  a  spirit  of  bravado  swing  himself  from  a  moving 
train,  and  hold  only  by  his  hands,  or  might  climb  to  the  top  of  a 
car  and  run  along  on  the  top,  or  do  other  things  which  no  prudent 
man  would  be  expected  to  do,  and  which  the  carrier  could  not 
possibly  provide  against  by  regulations. 

In  such  case,  he  can  claim  nothing  from  the  carrier  if  he  is 
injured.  The  happening  of  an  injury,  however,  is  prima-facie 
evidence  that  the  carrier  has  been  negligent,  and  it  devolves  upon 
him  to  show  that  the  passenger  contributed  to  his  own  injury. 
The  passenger  is  bound  to  exercise  ordinary  care  for  his  own 
safety,  and  if  he  does  not,  he  relieves  the  company  from  liability 
to  the  extent  that  he  himself  is  negligent. 

LUGGAGE. — A  common  carrier  of  persons,  unless  his  vehicle 
is  fitted  for  the  reception  of  persons  exclusively,  must  receive  and 
carry  a  reasonable  amount  of  luggage  for  each  passenger,  without 
charge,  except  for  an  excess  of  weight  of  over  100  pounds  for  a 
passenger,  provided  that  if  such  carrier  be  a  proprietor  of  a  stage 
line  he  need  not  receive  and  carry  for  each  passenger,  without 
charge,  more  than  60  pounds  of  luggage. 

Luggage  ma\r  consist  of  whatever  the  passenger  takes  with 
him  for  his  personal  use  and  convenience;  hence  trunks,  valises, 
bicycles,  and  tricycles  are  held  to  be  proper  luggage. 


COMMON    CAEEIERS.  153 

A  common  carrier,  while  he  must  carry  a  great  variety  of 
articles  under  the  term  luggage,  still  may  limit  his  liability  for 
loss  or  damage  in  a  reasonable  amount.  This  is  usually  fixed  at 
not  to  exceed  $100  for  a  trunk,  or  $50  for  a  valise. 

In  any  event,  a  carrier  of  luggage  could  not  be  made  to  pay 
for  the  loss  of  the  contents  of  a  valise  which  were  of  unusual  and 
extraordinary  value,  such  as  a  valise  full  of  money  or  jewelry. 

In  order  to  make  a  carrier  liable  for  loss  or  damage  to  luggage 
it  is  necessary  to  give  it  into  his  keeping. 

If  a  passenger  carries  his  valise  or  other  baggage  with  him,  he 
alone  is  responsible  for  its  safety,  unless  its  loss  occurs  through 
negligence  of  the  carrier  or  his  servants. 

EIGHTS  OF  THIRD  PARTIES.— Common  carriers  are,  of 
course,  liable  generally  for  any  violation  of  the  rights  of  parties, 
other  than  their  passengers,  the  same  as  any  one  else. 

Railroad  companies  are  the  most  numerous  and  powerful  ol 
common  carriers  in  this  country,  and  special  statutes  have  been 
directed  toward  them. 

A  railroad  company  must  make  and  maintain  a  good  and  suf- 
ficient fence  on  either  or  both  sides  of  their  track  and  property, 
under  penalty  of  damages  for  any  domestic  animals  killed  by  their 
trains. 

This,  of  course,  does  not  apply  in  cities  or  towns  where  stock 
is  not  permitted  to  run  about  the  highways,  as  in  such  case  the 
owners  of  stock  would  themselves  be  violators  of  the  law;  and 
"the  law  will  not  aid  wrong-doers." 

Such  carriers  are  further  required  to  ring  a  bell  and  blow  a 
whistle  at  specified  distances  from  each  street  or  road  crossing, 
and  are  liable  for  damages  for  all  injuries  suffered  by  third  parties 
when  these  provisions  are  violated;  and  the  person  in  charge  of  a 
locomotive  engine  who  fails  to  so  ring  the  bell,  or  sound  the 
whistle,  is  guilty  of  a  misdemeanor  and  may  be  punished  crim- 
inally; and  generally,  any  employee  who  wilfully  omits  a  duty  by 
which  human  life  is  endangered  is  guilty  of  a  misdemeanor. 


154  COMMERCIAL   LAW. 

A  number  of  cases  have  arisen  in  which  sparks  from  a  loco- 
motive engine  have  set  fire  to  grain  fields  and  other  personal 
property  along  the  route  of  the  railway. 

The  rule  of  damages  deduced  from  these  cases  is  generally 
stated  as  follows: 

That  a  railroad  company  is  liable  for  all  property  destroyed 
by  reason  of  fires  from  locomotive  engines,  the  law  requiring  such 
companies  to  furnish  their  locomotive  smoke-stacks  with  such 
cinder  screens  as  will  effectually  prevent  such  destruction  of 
property. 

TELEGKAPHS. — Telegraph  companies  are  considered  under 
the  head  of  carriers,  but  there  are  some  important  differences 
which  will  be  noted. 

One  great  difference  is  in  the  matter  of  liability.  A  carrier 
of  telegraphic  messages  is  required  to  use  great  care  and  diligence 
in  the  transmission  and  delivery  of  messages,  and  is  liable  for 
slight  negligence,  but  is  not  an  insurer  of  the  correctness  or 
safety  of  the  transmission  as  is  the  case  with  other  carriers. 

Such  carrier  must  deliver  a  message  to  such  place  and  person 
as  provided  in  tiie  address,  if  he  is  within  a  distance  of  two  miles 
from  the  main  office  nearest  the  place  of  address,  and  should  he 
delay  unreasonably,  cither  in  the  transmission  or  delivery,  he  is 
liable  in  damages  to  the  party  injured. 

ORDER  OF  TRANSMISSION.— A  carrier  of  messages  by 
telegraph  must,  if  it  is  practicable,  transmit  every  such  message 
immediately  upon  its  receipt,  but  if  this  is  not  practicable  he 
must  transmit  them  in  the  following  order: 

(1)  Messages  concerning  public  business; 

(2)  Messages    intended  for    immediate    publication  in  news- 
papers; 

(3)  Messages  relating  to  sickness  or  death; 

(4)  Other  messages  in  the  order  in  which  they  were  received. 
KIGHTS  AND  DUTIES.— A  carrier  of  telegraphic  messages 

&A1NT  ANTHONY'S  SEMINARY 


COMMON    CARRIERS  155 

may  limit  his  liability  in  a  similar  manner  as  a  carrier  of  passen- 
gers or  freight. 

He  may  stipulate  that  he  will  not  be  liable  above  a  certain 
specified  sum,  unless  the  message  is  "repeated,"  that  is,  sent  back 
to  the  sending  office  for  comparison. 

He  can  not,  however,  absolutely  limit  his  liability  to  any 
certain  amount,  as  momentous  consequences  may  follow  a  wrong 
dispatch. 

He  may  demand  pay  in  advance,  and  require  senders  to  write 
in  ink,  or  on  particular  sized  paper. 

He  may  refuse  to  pay  any  damage  caused  by  the  missending 
or  misreading  of  a  message  written  in  cipher,  unless  the  cipher 
is  explained  to  him.  cipher  messages  being  those  in  which  signs 
or  letters  are  used  to  represent  words. 

A  carrier  is  liable,  however,  in  any  case  where  damage  occurs 
tb rough  a  change,  by  the  operator,  of  the  message  as  written  by 
the  sender. 

In  one  case  a  company  was  compelled  to  pay  damages  where 
the  message  read,  "Send  Shep  by  next  train,"  and  the  operator, 
thinking  to  correct  poor  spelling,  sent  the  message  thus:  "Send 
sheep  by  next  train,"  thus  causing  a  dealer  to  send  his  agent  a 
large  consignment  of  sheep  instead  of  a  dog  named  Shep,  thereby 
causing  great  expense  and  loss  to  the  owner. 

If  an  operator  wilfully  divulges  the  contents  of  a  telegraphic 
message,  or  alters  it  unlawfully,  the  company  is  not  only  liable 
for  any  damage  which  may  occur  in  consequence,  but  the  operator 
is  guilty  of  a  felony  and  may  be  punished  criminally  therefor. 

TELEPHONES.— The  law  of  telephones  is  of  recent  growth, 
but  so  far  as  it  has  developed,  telephones  have  been  generally  held 
to  be  governed  by  the  same  rules  as  telegraphs,  so  far  as  in  the 
nature  of  things  they  can  be  made  applicable. 

Thus,  as  in  the  case  of  other  carriers,  telephone  companies  are 
bound  to  give  prompt  and  proper  service  to  all  comers,  and  are 
liable  for  damages  in  case  they  refuse. 


156  COMMERCIAL   LAW. 

Of  course,  they  can  not  be  held  responsible  for  missent  mes- 
sages as  they  do  not,  strictly  speaking,  send  any  messages  at  all, 
but  simply  1'urnish  the  appliance  by  which  the  customer  sends 
his  own  message.  They  are  liable  only  for  ordinary  negligence 
in  the  conduct  of  their  business. 


TEST  QUESTIONS. 

1.  A  passenger  on  a  train  refuses  to  give  up  his  ticket  because 

the  train  is  so  crowded  that  he  can  not  get  a  seat.  The 
conductor  puts  him  off  the  train.  Can  he  recover  dam- 
ages? 

2.  A  freight  company  refuses  to  take  goods  because  of  a  strike 

on  the  line.  Can  a  shipper  recover  damages  suffered  on 
account  of  refusal  of  the  company  to  carry  the  goods? 

3.  A  railroad  company  unloads  goods  at  its  depot,  and  the 

goods  are  immediately  destroyed  by  fire.  Is  the  company 
liable  for  the  loss? 

4.  A  car  load  of  live  stock  consigned  to  B  is  killed  in  a  wreck. 

The  wreck  is  not  caused  by  any  negligence  of  the  company. 
"Will  the  company  be  liable  for  the  damages? 

5.  If  goods  perish  on  the  road  by  "act  of  God,"  does  the  seller 

or  the  buyer  bear  the  loss? 

6.  A  passenger  refuses  to  pay  his  fare;  the  train  is  stopped 
and  he  is  ejected  at  a  farm  house.     He  then  offers  to  pay 
his  fare,  but  is  refused  admittance  to  the  train.     May  he 
recover  damages? 

7.  Explain  the  doctrine  of  "contributory  negligence." 

8.  A  package  is  sent  by  express  to  a  grocery  store  in  San  Fran- 

cisco. The  package  is  stolen  out  of  the  delivery  wagon 
of  the  express  company.  Discuss  the  liability  of  the  com- 
pany. 


COMMON   CARRIERS.  157 

9.  While  a  train  is  traveling  at  its  customary  speed  a  passen- 
ger attempts  to  pass  from  one  car  to  another,  and  in  doing 
so  falls  from  the  car  and  is  injured.     Discuss  his  right  to 
collect  damages. 

10.  A  \rrites  a  telegraphic  message  and  delivers  it  to  the  oper- 
ator.    The  operator  makes  a  mistake  in  reading  the  mes- 
sage as  written,  which  results  in  loss  to  A.     Discuss  A's 
right  to  recover  damages. 


CHAPTER  XXVII, 

SHIPPING. 

GENERAL  DEFINITIONS.— The  term  "ship"  or  "ship- 
ping" includes  steamboats,  sailing  vessels,  canal  boats,  barges,  and 
every  structure  to  be  navigated  from  place  to  place  for  the  trans- 
portation of  merchandise  or  persons. 

A  charter  party  is  the  contract  by  which  a  ship  is  let  or  hired 
out  to  a  person  for  use. 

BILL  OF  LADING. — A  bill  of  lading  is  an  instrument  in 
writing,  signed  by  a  carrier  or  his  agent,  describing  the  freight, 
stating  the  name  of  the  consignor,  the  terms  of  the  contract  for 
carriage,  and  an  agreement  that  the  freight  will  be  delivered  to  a 
certain  person,  or  order,  at  a  specified  place. 

As  we  have  stated  before,  a  bill  of  lading  has  by  special  statute 
been  made  a  negotiable  instrument,  and  can  therefore  pass  from 
hand  to  hand  in  the  same  manner  and  with  like  effect  as  is  the 
case  with  a  Bill  of  Exchange. 

Bills  of  lading  are  usually  signed  in  sets  of  three;  one  being 
given  to  the  consignor,  which  operates  as  a  receipt  for  goods 
received,  another  held  by  the  carrier  as  a  memorandum  of  the 
transaction,  and  the  third  sent  to  the  consignee. 

A  bill  of  lading,  as  used  in  sending  by  ship,  is  practically  the 
same  as  a  bill  of  lading  used  in  sending  goods  by  train. 

LIABILITY    OF   MARINE  CARRIERS— A  marine  carrier 
is  liable  in  like  manner  as  an  inland  carrier,  except  for  loss  or 
injury  caused  by  perils  of  the  sea  or  fire. 
(158) 


SHIPPING.  159 

Perils  of  the  sea  are  from, 

(1)  Storms  and  waves; 

(2)  llocks,  shoals,  or  other  obstacles; 

(3)  Change  of  climate;  and 

(4)  Generally,  all  dangers  peculiar  to  the  sea. 

A  marine  carrier  is  not  liable  for  damages  for  loss  of  goods  by 
fire,  unless  caused  by  the  design  or  neglect  of  the  carrier  or  his 
agents. 

In  consequence  of  the  great  danger  for  loss  of  goods  sent  by 
sea,  it  is  customary  for  all  shippers  to  place  insurance  on  'such 
goods. 

MARITIME  LOANS. — On  long  voyages  it  is  not  uncommon 
for  a  ship  to  be  disabled  so  as  to  need  repairs  beyond  the  amount 
of  coin  or  credit  which  she  may  have.  In  such  cases  the  captain 
of  the  vessel  is  authorized  to  borrow  money  for  the  purpose  of 
repairs,  and  give  as  security  a  document  in  the  nature  of  a  mort- 
gage upon  the  ship  or  its  cargo,  or  both,  for  the  repayment  of  the 
loan. 

This  document  is  called  a  bottomry  bond,  if  made  on  the  vessel, 
and  if  made  on  the  cargo,  is  called  a  respondentia  bond. 

PAYMENT  OF  LOANS. — It  sometimes  happens  that  two  or 
more  loans  may  be  required  at  different  ports  before  the  vessel 
reacnes  her  destination,  and  in  such  case,  the  rule  of  priority  in 
repayment  is  exactly  the  reverse  of  the  rule  in  ordinary  mortgages. 

In  ordinary  mortgages  the  mortgage  first  made  must  be  first 
paid.  On  marine  loans  the  last  made  must  be  first  paid,  on  the 
theory  that  the  last  loan  saved  the  vessel  from  destruction.  These 
loans  being  made  with  the  ship  and  cargo  as  security,  are  required 
to  be  repaid  only  in  case  the  ship  reaches  her  destination  in  safety, 
and  not  otherwise. 

AUTHORITY  OF  SHIPMASTER.— A  master  of  a  ship  is  a 
general  agent  for  its  owner,  and  also  general  agent  for  each  of  the 
owners  of  the  cargo. 


160  COMMERCIAL   LAW. 

He,  therefore,  in  addition  to  authority  to  borrow  money  a^ 
above  described,  has  authority  to  do  whatever  the  owners  might 
do  for  the  preservation  of  their  respective  interests;  so  in  case  a 
cargo,  if  found  to  be  of  such  perishable  nature,  or  in  such  dam- 
aged condition  that  if  left  on  board  the  ship,  would  be  lost,  he 
has  power  to  sell  such  cargo;  and  likewise  if  the  ship  is  seriously 
injured  beyond  the  possibility  of  pursuing  the  voyage,  the  master 
may  sell  the  ship;  and  in  like  case  he  of  course  may  sell  the  cargo, 
if  no  other  ship  can  be  obtained  to  carry  it  to  its  destination  at 
reasonable  cost. 

He  likewise  has  power,  in  case  of  storm  or  other  danger  which 
makes  it  necessary,  to  throw  overboard  such  part  of  the  cargo 
as  is  necessary  for  the  safety  of  the  ship.  In  such  case  the  owners 
of  the  part  of  the  cargo  which  is  saved  must  contribute  their  pro 
rata  of  the  value  of  the  cargo  thrown  overboard  to  the  owner  of 
such  cargo. 

This  act  of  contribution  is  called  "General  Average." 


TEST  QUESTIONS. 

1.  A  vessel  is  delayed  on  her  journey,  for  repairs.  She  has 
on  board  a  cargo  of  fruit.  Under  what  circumstances 
would  the  captain  be  justified  in  selling  it? 

3.  Illustrate  circumstances  under  which  the  master  of  a  vessel 
would  be  justified  in  throwing  overboard  part  of  the  cargo. 


CHAPTER  XXVIII. 

AGENCY. 

DEFINITION. — An  agent  is  one  who  represents  another, 
called  the  principal,  in  dealing  with  third  persons. 

Such  representation  is  called  "agency."  Any  person  having 
the  capacity  to  contract,  may  appoint  an  agent,  and  any  person 
may  be  an  agent.  The  last  sentence  should  be  carefully  noted. 

It  will  be  remembered  that  persons  having  capacity  to  con- 
tract are  those  who  are  not  minors,  persons  of  unsound  mind,  or 
persons  deprived  of  civil  rights. 

Any  one  of  these  three  classes  can  not  be  a  principal,  but  any 
person  may  be  an  agent.  This  includes,  of  course,  even  the  three 
classes  above  excepted,  but  as  a  matter  of  fact  of  the  three  classes 
a  person  deprived  of  civil  rights  could  not  ordinarily  be  an  agent, 
as  he  is  usually  confined  in  the  State  Prison;  and  a  person  who 
is  an  absolute  idiot,  would,  as  a  matter  of  fact,  be  incapable  of 
attending  to  business  of  any  kind,  and  hence  could  not  be  an 
agent. 

Minors,  however,  may  be  agents  to  the  full  extent  of  the  defi- 
nition. 

CLASSES  OF  AGENTS.— Generally  speaking  there  are  two 
classes  of  agents,  general  agents  and  special  agents. 

A  general  agent  is  one  who  is  empowered  to  transact  all  busi- 
ness of  his  principal  of  a  particular  nature,  or  all  business  at  a 
particular  place. 

He  may,  without  special  instructions,  do  any  act  in  regard  to 
the  business,  which  his  principal  could  do  if  personally  present. 

A  special  agent  is  an  agent  for  a  particular  act  or  transaction, 

11 


162  COMMERCIAL    LAW. 

and  is  empowered  to  do  only  what  is  necessary  to  complete  that 
act  or  transaction. 

APPOINTMENT  OF  AGENT.— An  oral  authorization  is  suf- 
ficient for  any  purpose,  except  that  an  authority  to  enter  into  a 
contract,  required  by  law  to  be  in  writing,  can  only  be  given  by 
an  instrument  in  writing;  thus  if  a  person  wishes  to  appoint  an 
agent  for  the  purpose  of  selling  land,  or  mortgaging  property, 
he  must  give  him  such  authority  in  writing,  under  the  same 
solemnities  as  is  required  in  the  deed  or  mortgage. 

Such  an  instrument  is  called  a  Power  of  Attorney,  and  simply 
sets  forth  the  names  of  the  parties,  and  the  power  which  the  one 
gives  to  the  other.  It  is  signed  by  the  principal,  and  must  "Be 
acknowledged  and  recorded  in  order  to  give  proper  effect  to  the 
agent's  subsequent  acts. 

EVIDENCE  OF  AUTHORITY.— In  dealing  with  agents,  a 
third  party  does  so  at  his  own  peril,  and  must  be  able  to  show  that 
he  had  reasonable  grounds  for  believing  the  agent  to  be  possessed 
of  proper  authority. 

A  written  authorization,  signed  by  the  principal,  is  of  course 
good  evidence. 

In  case  there  is  no  written  authority,  the  fact  that  a  principal 
has  allowed  another  to  hold  himself  out  as  his  agent,  and  by  his 
conduct  has  assented  to  his  transactions,  is  good  evidence  of  the 
creation  of  the  agency. 

An  office  clerk  or  bookkeeper  might  be  held  to  have  power  to 
collect  bills  for  the  firm,  although  that  was  not  his  exclusive  busi- 
ness; and  where  a  servant  is  repeatedly  sent  to  a  store  for  goods 
on  credit  the  merchant  is  justified  in  extending  reasonable  credit, 
and  the  master  is  responsible  for  all  such  goods  bought,  even 
though  in  some  cases  the  master  did  not  authorize  their  purchase. 

IMPLIED  POWERS. — As  a  general  rule  an  agent,  even  though 
he  is  a  special  agent,  has  implied  power  to  do  all  acts  which  nec- 
essarily pertain  to  Ihe  carrying  out  of  the  purposes  of  the  agency. 


AGENCY.  163 

Thus,  an  authority  to  sell  property  includes  authority  to  wax- 
rant  the  title  of  the  principal,  and  to  warrant  the  quality  and 
quantity  of.  the  property. 

A  general  agent  to  sell,  who  is  intrusted  by  the  principal  with 
the  possession  of  the  thing  sold,  has  authority  to  receive  the  price 
at  any  time  until  his  agency  is  revoked;  and  even  a  special  agent 
to  sell  has  authority  to  receive  the  price  on  delivery  of  the  thing 
sold,  but  not  afterwards,  as  his  agency  is,  of  course,  terminated 
witli  the  closing  of  the  sale. 

So  an  agent  to  sell  has  power  to  incur  proper  charges  for  car- 
riage or  expressage  in  delivering  the  property. 

LIABILITY  OF  PARTIES.— There  being  three  parties  to  a 
transaction  where  an  agent  is  employed,  instead  of  two,  as  in  con- 
tracts previously  discussed,  there  arise  many  questions  as  to  the 
liability  in  case  of  pecuniary  loss  resulting  from  the  transaction, 
and  the  law  has  prescribed  certain  rules  governing  the  varying 
conditions  under  which  loss  may  occur. 

LIABILITY  OF  PRINCIPAL  TO  THIRD  PARTIES.— "A 
principal  is  responsible  for  all  acts  of  his  agent  done  within  the 
apparent  scope  of  the  agent's  authority."  This  rule  must  be  care- 
fully examined  and  understood. 

The  word  "apparent"  is  very  important  in  its  signification. 
A  may  employ  an  agent  for  the  purpose  of  buying  general  hard- 
ware. He  may  not  choose  to  purchase  stoves,  yet  if  his  agent, 
being  known  as  his  agent  for  the  purchase  of  general  hardware, 
does  purchase  stoves,  the  stove  manufacturers  may  recover  dam- 
ages from  A  in  case  of  his  refusal  to  receive  or  pay  for  the  stoves. 

The  principal  is  thus  liable  for  whatever  acts  the  agent  does 
which  appear  to  be  within  the  scope  of  his  authority,  and  he  can 
not  bind  third  parties  by  any  private  instructions  given  to  the 
agent  without  the  knowledge  of  the  third  party. 

AGENTS'  WRONGFUL  ACTS.— A  principal  is  responsible 
to  third  persons  for  the  negligence  of  his  agent  in  the  transaction 


164  COMMERCIAL   LAW. 

of  the  business  of  the  agency,  including  wrongful  acts  committed 
by  such  agent  in  and  as  a  part  of  the  transaction  of  the  business. 

For  example:  While  it  is  the  duty  of  an  engineer  to  stop  a 
train,  still  if  he  does  so  suddenly  and  without  just  reason  therefor, 
and  thereby  injures  passengers,  the  railroad  company  is  liable  in 
damages;  or  in  case  of  a  bridge,  if  the  builder's  agent  negligently 
and  improperly  constructed  it  so  that  accidents  are  caused  thereby, 
the  builder  is  liable. 

An  agent  who  thus  wilfully  commits  a  wrong  may  also  be  held 
liable  criminally  if  his  intent  can  be  shown  to  injure  life  or  limb: 
and  as  a  matter  of  course  the  agent's  wilful  acts,  which  are  not 
done  in  and  as  part  of  the  business  of  the  agency,  are  chargeable 
only  to  himself;  as  in  case  of  the  engineer,  if  while  in  charge  of 
the  employer's  engine,  he  should  shoot  a  man,  the  principal  could 
not  in  such  case  be  held  liable,  shooting  not  being  a  part  of  the 
agency. 

So  a  principal  is  liable  for  the  unskilfulness  of  his  agent.  If 
a  stage  company  employs  an  unskilful  driver  who  overturns  the 
coach  and  maims  passengers,  the  company  is  liable,  and  can  not 
excuse  themselves  by  saying  he  was  recommended  as  a  skilful 
driver,  or  by  any  like  excuse. 

The  principal  is  bound  to  employ  proper  agents  in  dealing 
with  third  persons. 

PRINCIPAL'S  LIABILITY  BY  RATIFICATION.  —  It 
sometimes  happens  that  an  agent  will  do  an  act  beyond  both  the 
actual  and  apparent  scope  of  his  authority.  In  such  cases  the 
principal  may  afterwards  agree  to  ratify,  or  be  bound  by  the  act, 
and  when  he  does  so,  he  is  liable  for  all  damage  which  may  arise 
in  consequence  of  the  act. 

Ratification  may  be  manifested, 

(1)  By  actual  notice  to  the  third  party  by  the  principal; 

(2)  By  accepting  the  benefits  of  the  act; 

(3)  By  neglecting  to  disaffirm  within  a  reasonable  time  after 
notice  of  the  act. 


AGENCY.  165 

A  principal  can  not  ratify  an  act  which  he  had  no  power  to 
authorize  beforehand;  and  if  he  ratifies  part  of  an  indivisible 
transaction,  it  is  a  ratification  of  the  whole. 

Thus,  if  he  accepts  goods  purchased  without  authority,  he  can 
not  refuse  to  pay  the  price.  Where  an  authority  is  required  to  be 
in  writing  a  ratification  can  only  be  made  by  a  similar  writing. 

LIABILITY  TO  AGENT.— The  principal  is,  of  course,  liable 
to  the  agent  on  his  contract  of  employment  for  payment  of  the 
agent's  salary,  and  for  all  proper  expenses  which  the  agent  may 
incur  in  carrying  out  the  principal's  instructions. 

The  principal  is  also  liable  for  any  damage  which  may  happen 
to  the  agent,  without  the  agent's  fault,  in  carrying  out  the  in- 
structions of  the  principal. 

This  latter  rule  has  occasioned  much  litigation.  It  must  be 
accepted  with  some  qualification  and  explanation.  For  instance, 
a  principal  directs  his  agent  to  operate  a  certain  piece  of  machin- 
ery. If  the  agent  asserts  that  he  is  a  skilful  operator,  and  famil- 
iar with  that  particular  machine,  when  in  fact  he  is  not,  and  is 
injured  because  of  his  lack  of  knowledge,  the  principal  can  not  be 
held  liable. 

On  the  other  hand,  if  the  agent  is  known  to  be  ignorant  of  the 
machinery,  and  the  principal  gives  certain  instructions  which  the 
agent  folloAvs  to  the  best  of  his  ability,  using  ordinary  care,  and 
is  then  injured,  the  principal  is  liable  for  damages  for  the  injury; 
so  also  the  principal  is  liable  to  an  agent  for  damages  for  injuries 
received  by  reason  of  defective  machinery  or  tools  supplied  to  the 
workman  by  the  principal. 

AGE/NT'S  LIABILITY  TO  THIRD  PARTIES.— One  who 
assumes  to  act  as  an  agent  is  responsible  to  a  third  person  and  to 
the  principal  for  his  acts  in  the  course  of  his  agency,  in  the  fol- 
lowing cases: 

(1)  When  credit  is  given  to  him  personally; 

(2)  When  he  enters  into  a  written  contract  in  the  name  of  his 
principal  without  believing  that  he  has  authority  to  do  so; 


166  COMMERCIAL   LAW. 

(3)  When  his  acts  are  wrongful  in  their  nature. 

Of  course,  when  credit  is  given  to  him  personally  he  becomes 
to  that  extent  the  principal  in  the  transaction,  and  in  such  cases 
is  personally  liable. 

Under  the  second  subdivision  both  he  and  the  principal  arc 
liable  under  the  written  contract  to  third  parties. 

When  his  acts  are  wrongful  in  their  nature,  he,  as  a  matter  of 
right,  should  be  and  is  held  responsible;  and  as  we  have  seen, 
when  such  wrongful  acts  are  connected  with  the  business  of  the 
agency,  and  as  a  part  of  such  agency,  the  principal  is  also  respon- 
sible. 

The  agent  can  not  claim  in  order  to  relieve  himself  of  liabil- 
ity for  a  wrongful  act,  that  he  did  it  under  authority  of  the  prin- 
cipal, as  a  principal  can  not  give  an  authority  to  commit  a  wrong: 
any  such  attempted  authority  is  absolutely  void,  and  the  agent 
is  not  liable  as  an  agent,  but  as  a  wrong-doer. 

LIABILITY  TO  PRINCIPAL.— An  agent  is  generally  liable 
to  the  principal  for  all  acts  which  he  may  do  in  the  name  of  the 
principal,  but  without  the  scope  of  his  actual  authority. 

It  is  his  duty  to  obey  strictly  the  instructions  of  the  principal. 

In  only  one  case  has  he  power  to  disobey  the  principal's  in- 
structions, and  that  is  in  a  case  where  it  is  clearly  in  the  interests 
of  his  principal  that  he  should  do  so,  and  there  is  not  time  to  com- 
ttranicate  with  the  principal. 

The  most  familiar  instance  under  this  doctrine,  is  the  case  of 
a  master  of  a  ship,  who  in  emergency  may  not  only  hypothecate 
the  ship  and  cargo,  but  even  sell  both,  or  cast  the  cargo  over- 
board. Such  acts  must  not  be  done,  and  the  agent  will  be  liable 
therefor,  unless  he  can  show  an  overwhelming  necessity  for  such 
disobedience  to  instructions. 

An  agent  is  bound  to  disclose  all  information  which  he  may 
obtain,  to  the  principal,  and  must  not  in  any  way  advance  his 
own  interests  at  the  expense  of  the  interests  of  his  principal;  e.  g.> 


AGENCY.  167 

• 

A  may  instruct  his  agent  to  sell  wheat  if  he  can  get  $1.50  per 
cental.  The  agent  receives  $1.60  per  cental.  He  has  no  right  to 
appropriate  the  difference  to  his  own  use;  on  the  contrary,  should 
he  disobey  instructions  and  sell  the  wheat  for  $1.40  per  cental,  he 
must  bear  the  loss. 

The  principal  is  entitled  to  the  highest  degree  of  skill  pos- 
sessed by  the  agent  in  the  line  of  his  employment,  and  he  is  liable 
to  the  principal  for  any  loss  resulting  from  his  lack  of  proper 
attention  to  the  business  of  the  agency. 

EIGHTS  AND  DUTIES  OF  THIRD  PARTIES.— A  third 
party  in  dealing  with  an  agent  is  bound  to  exercise  ordinary  care 
and  prudence  in  learning  the  extent  of  the  agent's  authority,  and 
if  he  is  deceived  through  lack  of  ordinary  prudence,  the  principal 
can  not  be  made  to  respond  in  damages. 

He  is  not,  however,  bound  to  make  a  special  investigation  into 
the  details  of  the  agency  before  transacting  business  with  the 
agent. 

Thus,  where  even  a  stranger  presents  himself,  representing 
that  he  is  a  selling  agent  of  some  well-known  business  house,  and 
carries  with  him  certain  samples,  and  generally  conducts  himself 
and  presents  such  credentials  as  men  in  his  class  of  business  usu- 
ally present,  a  purchaser  would  be  justified  in  giving  an  order  to 
such  person  and  holding  the  principal  responsible  for  a  failure  to 
fill  such  order. 

NOTICE  TO  AGENT.— As  against  principal,  both  principal 
arid  agent  are  deemed  to  have  notice  of  what  either  has  notice  of, 
and  in  good  faith  and  the  exercise  of  ordinary  care  and  diligence 
should  communicate  to  the  other.  Hence,  if  a  third  person 
desires  to  change  or  countermand  an  order  when  it  is  proper  to  do 
so,  he  may  send  notice  to  the  agent  of  his  desire,  and  such  notice 
will  be  deemed  to  be  notice  to  the  principal. 

AGENCY  TERMINATED.— An  agency  may  be  terminated, 
generally  speaking,  in  three  ways: 


168  COMMERCIAL   LAW. 

(1)  By  expiration  of  time; 

(2)  Act  of  the  parties; 

(3)  Change  in  condition  of  the  parties,  or  subject  matter. 
BY  EXPIRATION  OF  TIME.— An  agent  may  be  hired  for  a 

specified  time,  and  at  the  expiration  of  that  time  his  agency  is 
terminated,  unless  by  his  contract  he  is  also  required  to  finish 
certain  work.  In  such  case  the  time  is  extended  until  such  work 
is  finished;  and  in  case  no  time  is  set,  a  special  agency  is  termi- 
nated as  soon  as  the  particular  business  for  which  the  agent  was 
appointed,  is  consummated. 

ACT  OF  PARTIES. — The  principal  may  at  any  time  revoke 
the  agency  by  giving  proper  notice  to  the  agent,  and  to  third 
parties  dealing  through  him,  unless  the  agent's  power  is  coupled 
with  an  interest  in  the  subject  matter,  as  in  case  he  is  part  owner 
of  the  business. 

The  agent  also  may  renounce  the  agency  at  any  time  upon 
notice,  but  he  is  liable  for  any  damages  which  may  occur  by  his 
leaving  the  employment  before  the  expiration  of  his  term,  or 
before  the  finishing  of  his  special  work. 

In  any  case  no  particular  form  of  notice,  either  by  the  agent 
or  his  principal,  is  required.  Any  notice  which  will  properly 
inform  either  of  the  desire  of  the  other,  is  sufficient. 

CHANGE  IN  CONDITION  OF  THE  PARTIES  AND  IN 
SUBJECT  MATTER.— The  agency  is  revoked  by  the  incapacity 
or  death  of  either  party,  though  in  case  of  the  death  or  incapacity 
of  the  principal,  the  agent  is  bound  to  exercise  his  powers  as  agent 
for  a  reasonable  time  if  necessary  to  preserve  the  property  of  his 
principal,  and  is  entitled  to  compensation  for  such  service. 

Bankruptcy  of  either  party  is  such  a  change  in  the  condition 
of  the  parties  as  terminates  the  agency.  If  the  principal  becomes 
bankrupt,  his  property  is  all  placed  out  of  his  control,  and  his 
authority  terminates.  » 

By  the  bankruptcy  of  the  agent,  he  is  technically  considered 


AGENCY.  169 

to  have  lost  his  business  standing  for  the  time:  but  it  seems  there 
is  no  objection  to  a  person's  being  employed  as  an  agent  while 
his  property  is  in  the  hands  of  a  court  of  bankruptcy. 

The  extinction  of  the  subject  of  the  agency,  such  as  the  death 
of  a  horse,  which  an  agent  was  employed  to  train,  or  the  decaying 
of  fruit  which  the  agent  was  employed  to  sell,  terminates  the 
agency. 

TEST  QUESTIONS. 

1.  An  agent  makes  a  contract  with  B,  a  third  party,  in  his 
own  name.      B  does  not  know  of  the  agency.      Can  the 
principal  enforce  this  contract  with  B? 

2.  In  the  above  case  should  B  discover  the  real  principal,  can 

he  enforce  a  claim  for  damages  against  him? 

3.  An  agent   to  sell   goods,  buys  certain   goods  for   his  firm. 

Discuss  the  obligation    of  his  firm  to  pay  for  the  goods. 

4.  A  has  authority  as  a  general  agent;  he  is  given  special  in- 

structions in  regard  to  the  business.  Can  he  violate  the 
special  instructions  and  escape  liability  on  the  ground  of 
being  a  general  agent? 

5.  A,  as  an  agent,  sold  a  sewing  machine  to  B  at  an  agreed 

price  of  $30.  After  the  machine  was  delivered  the  com- 
pany demanded  payment  in  the  sum  of  $50  for  the  machine. 
Which  price  must  B  pay? 

6.  A,  who  is  an  experienced  man  in  that  line,  is  employed  to 

"run"  a  threshing  machine.  His  foot  is 'crushed  in  the 
machinery.  Discuss  his  right  to  recover  damages  from  the 
owners. 

7.  Farmer    Smith's  workhand,  while    burning  stubble,  negli- 
gently allowed  the  fire  to  extend  to  Farmer  B's  land,  and 
B's  house  is  burned.     "Who  is  liable? 

8.  In  the  above  question  would  it  alter  the  case  if  the  farm- 
hand wilfully  directed  the  fire  toward  B's  house  so  that 
it  was  consumed? 


CHAPTER  XXIX. 

PAETNEESHIP. 

DEFINITION. — Partnership  is  the  association  of  two  or  more 
persons  for  the  purpose  of  carrying  on  business  together  and 
dividing  its  profits,  and  sharing  its  losses  between  them. 

Partnerships  may  be  either  General  or  Special,  and  formed  by 
either, 

(1)  A  written  contract; 

(2)  An  oral  agreement;  or 
(3j  By  implication. 

In  any  case,  a  partnership  can  be  formed  only  by  the  consent 
of  all  the  parties  thereto,  and  therefore  no  new  partner  can  be 
admitted  into  the  firm  without  the  consent  of  every  member 
thereof. 

WHEN  IS  A  PAETNEESHIP  FOEMED.— The  best  evidence 
of  the  formation  of  a  partnership  is  a  written  contract  which  has 
been  entered  into  by  the  parties.  Such  a  contract,  called  "Articles 
of  Co-partnership,"  is  usually  a  formal  document  setting  forth 
the  names  of  the  parties,  the  kind  of  business,  the  amount  of  cap- 
ital contributed  by  each;  and  generally,  such  agreements  as  they 
may  wish. 

When  oral  contracts  are  made,  it  is  sometimes  difficult  to  deter- 
mine whether  the  contract  is  one  of  partnership  or  of  agency, 
especially  if  one  person  does  all  of  the  work,  the  other  furnishing 
all  of  the  money  or  other  capital;  and  in  cases  of  partnership  by 
implication,  the  acts  of  the  parties  alone  can  be  depended  upon  to 
determine  whether  or  not  a  partnership  exists. 

EXAMPLES. — A  owns  land;  he  enters  into  a  contract  with 
( 170 ) 


PARTNERSHIP.  171 

B  to  farm  that  land,  and  deliver  to  him  one-third  of  the  products. 
This  is  held  not  to  be  a  partnership,  but  a  mere  leasing;  while 
two  persons  engaging  in  the  farming  of  land  and  raising  of  wheat 
together,  with  the  understanding  that  the  product  was  to  be 
divided  proportionately,  the  contract  was  held  to  constitute,  a 
partnership;  and  it  is  held  as  a  general  rule  that  where  a  person 
receives  a  certain  per  cent  of  the  profits  as  profits,  he  is  a  partner; 
but  where  he  receives  merely  a  sum  of  money  equal  to  a  certain 
per  cent  of  the  profits,  he  is  not  a  partner. 

LIABILITY  OF  PARTNERS.— Each  member  of  a  partner- 
ship, by  entering  into  such  partnership,  makes  himself  liable  for 
all  of  the  debts,  if  any  there  be,  against  the  partnership. 

It  matters  not  that  lie  may  own  but  a  small  interest  in  the 
business,  he  is  liable  nevertheless  for  all  debts  to  whatever  extent, 
and  his  personal  property  may  be  taken  and  sold  for  partnership 
debts  if  necessary  to  satisfy  them. 

This  refers,  however,  only  to  the  usual,  or,  as  it  is  called,  a 
general  partnership.  A  special  partnership  is  described  in  the 
next  section. 

SPECIAL  PARTNERSHIP  is  a  partnership  formed  under 
special  statute,  and  may  consist  of  one  or  more  general  partners, 
and  one  or  more  special  partners. 

The  chief  difference  between  a  general  and  a  special  partner  is 
that  the  special  partner  may  limit  his  liability  for  losses  by  mak- 
ing and  recording  Articles  of  Co-partnership,  in  which  is  stated 
the  amount  of  stock  or  share  which  he  has  contributed,  and  for 
which  he  will  be  liable. 

Such  certificate  of  partnership  must  also  be  published,  so  as 
to  give  full  notice  to  the  public  that  such  partnership  is  formed. 

When  the  special  partners  have  properly  complied  with  the 
law  in  forming  the  partnership,  each  special  partner  can  be  held 
liable  only  for  the  amount  of  capital  invested. 

Thus,  if  A,  as  a  special  partner,  invests  $5,000,  he  is  only 


172  COMMERCIAL  LAW. 

obliged  to  pay  in  caw  of  loss  $5,000  of  indebtedness,  while  the 
general  partners  are  each  liable  as  in  ordinary  co-partnerships  for 
the  total  indebtedness. 

FIKM  NAME. — A  firm  name  is  often  composed  simply  of  the 
names  of  the  members  of  the  co-partnership,  but  any  designation 
may  be  made,  and  business  conducted  thereunder,  as  "The  Cali- 
fornia Hardware  Company;"  but  in  case  a  fictitious  name  is  used, 
such  as  "The  California  Hardware  Company,"  the  partners  are 
required  to  publish  in  a  newspaper,  and  file  a  certificate  with  the 
County  Clerk  of  the  County  where  the  business  is  conducted, 
stating  the  true  names  in  full  of  the  members  of  the  co-partnership, 
under  penalty  of  being  deprived  of  the  right  to  bring  a  suit  in 
court  until  such  publication  and  filing  is  done. 

In  the  case  of  a  special  partnership,  it  is  not  lawful  to  use  the 
name  of  the  special  partner  in  the  firm  name,  unless  it  be  accom- 
panied with  the  word  "limited." 

This  last  provision  is  for  the  protection  of  people  who  might 
give  extensive  credit  to  the  firm  on  the  supposition  that  the  one 
whose  name  so  appeared  was  a  general  partner. 

CLASSES  OF  PARTNERS.— The  classes  of  partners  are: 

(1)  Ostensible; 

(2)  Dormant; 

(3)  Nominal;  and 

(4)  Special. 

AN  OSTENSIBLE  OR  REAL  PARTNEE  is  one  who  allows 
his  name  to  be  used  publicly  as  a  partner,  and  who  is  really  a 
partner. 

A  DORMANT  PARTNER,  as  the  word  indicates,  is  a  sleep- 
ing partner,  or  one  who  is  hidden,  and  does  not  take  any  active 
part  in  the  partnership,  nor  allow  his  name  to  appear  in  any  way, 
so  that  no  one  knows  that  he  is  a  partner  except  the  members  of 
the  firm. 

The  object  in  concealing  his  identity  as  a  partner  is,  of  course, 
to  escape  liability  in  case  debts  are  created. 


PARTNERSHIP.  173 

He  is,  in  a  sense,  a  real  partner  in  the  firm,  and  if  he  is  dis- 
covered by  a  creditor,  he  can  be  compelled  to  pay  any  and  all 
debts  of  the  firm  in  the  same  manner  as  though  he  had  at  all 
times  been  known  as  a  partner,  and  it  makes  no  difference  that 
the  debt  was  created  during  the  time  that  he  was  dormant. 

A  NOMINAL  PARTNER  is,  as  the  name  indicates,  a  partner 
in  name  only,  and  as  between  the  partners  themselves  has  nothing 
to  do  with  the  business,  either  to  share  profits  or  divide  losses; 
however,  as  the  purpose  of  a  nominal  partner  is  for  the  strength- 
ening of  the  credit  of  the  firm  by  use  of  the  name  of  some  respon- 
sible man,  this  man,  the  nominal  partner,  must  pay  the  penalty, 
should  any  debts  or  losses  occur. 

In  brief,  so  far  as  third  parties  are  concerned  he  is  to  all 
intents  and  purposes  an  ostensible  or  real  partner. 

SPECIAL  PARTNERS  have  already  been  discussed  in  dis- 
tinguishing between  special  and  general  partners. 

AUTHORITY  OF  PARTNERS.— Each  partner  is  a  general 
(as  distinguished  from  special)  agent  for  the  firm,  and  as  such 
general  agent  he  may  bind  the  firm  by  any  and  all  acts  which  he 
may  do  in  the  carrying  on  of  the  partnership  business  in  the  ordi- 
nary manner. 

Hence,  he  may  buy  and  sell  goods,  give  warranties,  appoint 
agents,  and  make,  accept,  or  endorse  negotiable  papers  in  the  firm 
name. 

The  following  acts  are  forbidden  him.     He  can  not 

(1)  Make  an  assignment  of  partnership  property; 

(2)  Sell  the  good-will  of  the  business; 

(3)  Submit  a  claim  to  arbitration; 

(4)  Generally,  do  any  act  which  would  make  it  impossible  to 
carry  on  the  ordinary  business  of  the  partnership. 

A  partner  in  all  business  transactions  relating  to  the  firm  busi- 
ness must  hold  the  interests  of  the  firm  above  his  personal  inter- 
est; hence,  he  has  no  right  to  make  a  piirchase  with  firm  funds, 


174  COMMERCIAL   LAW. 

and,  should  the  venture  be  profitable,  appropriate  the  profits,  and 
if  unprofitable,  charge  the  firm  with  the  loss. 

It  must  be  either  a  firm  act  or  an  individual  act;  and  as  a  rule 
he  can  not  transact  any  business  in  opposition  to  the  interest  of 
the  firm. 

PARTNERSHIP  AGREEMENTS.— Any  agreement  in  re- 
gard to  the  nature  of  the  business,  amount  of  stock  to  be  employed, 
the  conduct  of  the  business,  or  in  fact  anything  pertaining  to  the 
partnership,  is  valid  as  between  the  partners  themselves,  so  long  as 
it  is  lawful;  and  as  between  themselves  a  court  of  equity  will 
enforce  all  such  agreements,  but  as  against  third  parties  no  secret 
agreements  between  the  partners  Avhich  work  injury  to  a  third 
party,  are  valid. 

Thus,  if  A  holds  himself  out  as  a  general  partner,  while  as  a 
matter  of  fact  he  has  a  secret  understanding  with  his  partners 
that  he  shall  be  only  liable  for  a  small  proportion  of  the  debt,  he 
is  nevertheless  liable  as  a  general  partner,  and  his  secret  agree- 
ment is  void,  so  far  as  the  creditor  is  concerned,  although  he  may 
enforce  contribution  from  the  others. 

Even  where  a  partner  acts  in  bad  faith  toward  another,  so  long 
as  the  agreement  is  proper  and  lawful,  all  of  the  partners  are 
bound  by  it,  if  third  parties  would  be  injured  by  a  refusal  to  abide 
by  the  act,  but  not  otherwise. 

Of  course,  in  all  cases  where  one  partner  suffers  damage 
through  the  act  of  another,  he  has  his  remedy  against  the  other. 

PROFITS. — All  profits  made  by  a  general  partner  in  the 
course  of  any  business,  usually  carried  on  by  the  partnership, 
belong  to  the  firm;  and  should  he  engage  in  business  adversely  to 
the  interests  of  his  firm,  or  use  partnership  funds,  all  profits  be- 
long to  the  partnership. 

Partners  may  agree  as  to  how  profits  shall  be  divided.  Two 
men  may  enter  into  co-partnership  and  agree  to  divide  the  profits 
equally,  or  one  may  have  put  in  more  capital  than  the  other  and 


PARTNERSHIP.  175 

they  may  divide  it,  giving  one  two-thirds,  the  other  one-third  of 
the  profits,  or  in  any  way  that  they  may  agree  upon. 

As  we  have  seen,  persons  may  enter  into  co-partnership  with- 
out intending,  or  without  really  knowing  that  they  are  partners 
under  agreements  for  the  share  of  profits,  but  a  mere  clerk  or 
employee,  who  is  to  be  paid  a  commission  in  proportion  to  the 
amount  of  profits  made,  is  not  a  partner. 

LOSSES. — It  is  usual  for  partners  to  agree  among  themselves 
that  they  each  will  pay  all  losses  in  the  same  proportion  as  they 
divide  profits. 

This  agreement,  so  far  as  it  concerns  the  partners,  is  binding 
upon  them,  but  as  we  have  noted,  can  not  bind  creditors,  as  the 
law  provides  that  each  partner  shall  be  liable  for  the  entire  indebt- 
edness of  the  firm,  unless  he  has  limited  his  liability,  as  in  the 
case  of  a  special  partnership. 

CAPITAL. — The  capital  of  a  partnership  consists  of  any- 
thing and  everything  which  is  used  in  the  conduct  of  the  partner- 
ship business. 

It  may  consist  of  money,  merchandise,  store  fixtures,  horses, 
wagons,  hay,  or  even  the  services  of  one  of  the  partners,  or  the  use 
of  a  horse  and  wagon. 

It  is  frequently  the  case  that  one  partner  invests  a  certain 
amount  of  money  as  his  pro  rata  of  the  capital,  while  another  con- 
tributes his  skill,  knowledge,  and  experience  in  the  business  as 
his  pro  rata. 

SUITS. — A  general  partnership  may  sue  and  be  sued  in  the 
firm  name  in  the  same  manner  as  an  individual. 

In  the  case  of  partnerships  doing  business  under  a  fictitious 
name  they  must,  as  we  have  seen,  file  with  the  County  Clerk  the 
true  names  of  the  partners  before  they  are  allowed  to  bring  suits, 
while  any  one  wishing  to  sue  the  firm,  may  sue  it  under  the  ficti- 
tious name,  and  when  the  true  names  of  the  partners  are  discov- 
ered, they  may  be  inserted  in  the  papers. 


176  COMMERCIAL   LAW. 

DISSOLUTION. — A  general  partnership  is  dissolved  as  to  all 
the  partners, 

(1)  By  a  lapse  of  time  prescribed  by  agreement  for  its  dura- 
tion; 

(2)  By  the  expressed  will  of  any  partner,  if  there  is  no  such 
agreement; 

(3)  By  the  death  of  a  partner; 

-(4)  By  the  transfer  to  a  third  party  of  the  interest  of  any 
partner; 

(5)  By  a  judgment  of  dissolution. 

BY  AGREEMENT. — In  all  cases  where  articles  of  co-partner- 
ship are  formally  drawn  up,  it  is  customary  to  state  the  time  for 
the  continuance  of  such  partnership,  and  when  that  time  elapses 
any  partner  may  consider  the  partnership  at  an  end  and  demand 
a  division  of  the  property. 

Of  course,  if  the  firm  continues  to  do  business  after  the  lapse 
of  such  time,  it  is  still  a  partnership. 

Where  a  partnership  is  formed  for  a  particular  purpose,  there 
is  an  implied  agreement  that  the  partnership  shall  end  when  that 
purpose  has  been  accomplished. 

When  there  is  no  agreement  the  partnership  may  be,  as  stated 
above,  dissolved  by  anjr  partner  by  his  simply  declaring  that  he 
withdraws  from  the  partnership,  and  demanding  an  accounting 
and  settlement  of  the  affairs. 

BY  DEATH. — Partnership  is  a  confidential  and  personal 
relation  between  men.  Men  combine  only  with  others  whom  they 
can  trust,  or  for  whom  they  have  a  particular  liking,  or  in  whose 
judgment  they  have  confidence. 

Hence,  when  one  partner  dies,  it  would  be  injustice  to  the 
other  members  to  allow  his  heirs  to  take  a  part  in  the  conduct  of 
the  partnership  business  without  the  consent  of  the  others,  and 
the  law  has  declared  that  the  death  of  one  partner  dissolves  the 
partnership,  and  there  must  be  an  accounting  and  a  settling  up 
of  the  business. 


PARTNERSHIP.  177 

TRANSFER  TO  THIRD  PERSONS  dissolves  a  partnership, 
and  for  a  similar  reason,  as  stated  in  the  last  section.  A  third 
person  entering  into  the  firm  inight  not  be  a  person  desired  by 
the  remaining  members;  hence  when  a  sale  is  had  the  partnership 
is  dissolved  and  a  new  one  created,  if  the  business  is  to  be  further 
conducted. 

BY  JUDGMENT. — A  court  of  equity  is  seldom  called  into 
requisition  to  dissolve  a  partnership,  unless  the  partners  are 
unable  to  agree  upon  the  terms  of  dissolution. 

A  general  partner,  however,  is  entitled  to  judgment  of  disso- 
lution under  the  following  and  similar  grounds: 

(1)  AVhen  a  partner  becomes  legally  incapable  of  contracting; 

(2)  "When  he  fails  to  perform  his  duties,  or  is  guilty  of  serious 
misconduct,  such  as  habitual  drunkenness; 

(3)  "When    there  is  a  permanent    loss  in  the  conduct    of   the 
business; 

(4)  Where  there  is  serious    quarreling  or  contentions    among 
the  partners  so  as  to  render  it  impracticable  properly  to  carry  on 
business. 

In  any  of  these  cases  the  partner  complaining  must  present  in 
his  complaint  to  the  proper  court  full  statements  of  the  facts  upon 
which  he  seeks  to  dissolve  the  partnership.  In  a  proper  case,  the 
court  may  appoint  a  receiver  to  settle  up  the  business,  and  make 
proper  division  of  the  proceeds,  if  any. 

RIGHTS  OF  THIRD  PARTIES.— In  the  event  of  a  dissolu- 
tion of  the  firm,  the  parties  who  retire  from  the  firm  must  give 
proper  notice  to  all  creditors  of  the  fact  of  dissolution  in  order  to 
protect  themselves  from  liability. 

This  notice  is  usually  given  by  means  of  an  advertisement 
inserted  in  a  newspaper,  and  by  changing  the  firm  name  on  the 
^igns  and  office  stationery,  and  sometimes  by  sending  notices  by 
mail  to  the  creditors  of  the  firm. 

A  retiring  partner  is,  however,  liable  at  all  times  for  debts 
incurred  while  he  was  a  partner  in  the  firm. 


178  COMMERCIAL   LAW. 

Creditors  may  enforce  their  rights  against  the  capital  stock  for 
old  debts,  even  after  a  new  partner  has  come  into  the  business. 

PARTNERS'  AUTHORITY  AFTER  DISSOLUTION.— 
When  a  firm  has  been  dissolved,  it  is  customary  for  one  of  the 
partners  to  settle  all  outstanding  accounts  and  collect  all  moneys 
due  the  firm,  and  he  is  clothed  with  the  power  to  do  all  such 
things,  and  only  such  things,  as  are  necessary  to  properly  settle 
up  the  business  of  the  partnership. 

In  case  there  is  a  loss,  he  should  apply  the  proceeds  of  the 
partnership  property  to  the  settlement  of  all  claims  against  the 
firm. 

If  there  is  a  surplus  he  should  divide  it  amongst  the  partners 
in  accordance  with  the  agreement  entered  into  in  forming  the 
partnership. 

It  is  only  after  partnership  assets  are  all  exhausted  that  cred- 
itors may  hold  the  members  of  the  firm  individually  liable  for 
partnership  debts. 


TEST  QUESTIONS. 

1.  A  allows  B  to  farm  his  land  for  a  year,  agreeing  to  accept 

as  rent  one-third  of  the  crop  raised.     Does  this  agreement 
constitute  a  partnership? 

2.  The  same  parties  farm  the  land  together,  A  furnishing  seed 
and  implements,  and  B  doing  the  work,  B  taking  one-half 
of  the  crop.     Is  it  a  partnership? 

3.  A  and  B  are   partners  in  the  grocery  business.      A  buys  a 
horse  and  gives  a  note  in  the  firm  name  in  payment.     Dis- 
cuss the  obligation  of  the  firm  to  pay  the  note. 

4.  After  a  partnership  is  dissolved,  one  of  the  partners  orders 

a  bill  of  goods  in  the  firm  name.     Can  the  firm  be  com- 
pelled to  pay  for  the  goods? 


PARTNERSHIP.  179 

5.  A  and  B  are  engaged  in  the  real,  estate  business  as  part- 
ners.    A  buys  a  piece  of  property,  and  immediately  resells 
it  at  a  profit.      He   does  not  pay  for  the  land  until  he  is 
paid.     Must  he  account  to  B  for  a  share  of  the  profits? 

6.  A  and  B  are  partners  in  a  grocery  business.     A  wishes  to 
buy  a  large  amount  of  flour.     B  objects  and  the  flour  is  not 
bought.     It  turns  out  that  had  the  flour  been  purchased, 
a  large  profit  would  have  been  realized.     Is  B  liable  to  A 
for  the  loss?    "Would  such  conduct  on  B's  part  justify  A 
in  applying  for  a  Decree  of  Dissolution? 


CHAPTER   XXX. 

CORPORATIONS. 

DEFINITION. — A  corporation  is  a  creature  of  the  law  hav- 
ing certain  powers  and  duties  of  a  natural  person. 

Being  created  by  law,  a  corporation  has  only  such  powers  as 
may  be  specially  granted  it  by  the  law,  or  which  are  necessarily 
implied,  and  required  in  order  to  carry  out  such  powers  as  are 
expressly  given. 

They  are  divided  into  two  classes: 

(1)  Sole;  and 

(2)  Aggregate. 

CORPORATIONS  SOLE.— These  corporations  are  quite  com- 
mon in  England  and  some  other  European  countries,  but  are  little 
known  in  America. 

As  the  name  indicates,  they  consist  of  one  person  in  whom  is 
invested  an  artificial  being  with  prescribed  powers  and  duties. 

In  England  the  sovereign  is  a  corporation  sole;  also  bishops 
and  other  high  officials  in  the  established  church.  The  principal 
object  in  creating  these  certain  officials  corporations  is  that  they 
may  have  the  power  of  succession;  that  is  to  say,  when  the  indi- 
vidual dies,  the  corporation  lives,  and  thus  the  new  bishop  or 
church  officer  takes  the  place  of  the  other  as  such  official,  without 
any  formal  changing  of  title,  or  probating  of  the  estate. 

So  it  is  when  the  sovereign  dies,  the  next  in  succession  is,  by 
virtue  of  lawy  considered  king  the  instant  life  has  departed  from 
the  sovereign. 

These  corporations  concern  us,  however,  but  little,  except  as  a 
matter  of  history. 
(180) 


CORPORATIONS.  181 

CORPORATIONS  AGGREGATE,  as  the  name  indicates,  are 
composed  of  a  number  of  persons,  usually  associated  together  for 
the  transaction  of  business. 

CHARITABLE  CORPORATIONS  are  such  corporations 
aggregate  as  are  formed  for  assisting  the  indigent,  or  for  educa- 
tional purposes,  and  also  what  are  sometimes  called  religious  cor- 
porations, those  formed  for  the  purpose  of  caring  for  the  property 
of  churches  and  societies  of  like  nature,  are  included  under  the 
head  of  charitable  corporations. 

CIVIL  CORPORATIONS  include  all  other  corporations 
aggregate,  and  are  further  divided  into  two  classes, — public  and 
private. 

PUBLIC  CORPORATIONS  are  those  which  are  formed  for 
governmental  purposes, — counties,  cities,  towns,  school  districts, 
and  townships,  are  common  examples  of  public  corporations. 

After  a  city  has  been  incorporated  it  has  power  to  enact  for  its 
own  government  such  laws  as  do  not  conflict  with  the  general 
laws. 

Hence,  such  a  city  may  levy  taxes  within  its  boundaries  for 
the  improvement  of  streets,  the  building  of  sewer  systems,  or  sup- 
plying the  city  with  water,  or  any  such  like  purpose. 

It  may  also  regulate,  the  sale  of  foods  or  drinks,  so  far  as 
such  regulations  do  not  conflict  with  State  or  National  laws. 

They  may  sue  and  be  sued  in  their  corporate  name.  All  this, 
it  will  be  readily  seen,  is  of  great  advantage  to  any  community. 

Such  corporations  are  formed  by  charter  from  the  State  Legis- 
lature, or  under  general  laws. 

These  general  laws  must  be  strictly  followed  in  order  properly 
to  form  the  public  corporation. 

PRIVATE  CORPORATIONS.— It  is  this  class  of  corpora- 
tions which  we  wish  particularly  to  consider  in  our  discussion  of 
the  subject. 

The  business  of   private   corporations  comprises  every  line  of 


182  COMMERCIAL   LAW. 

commercial  enterprise,  and  the  formation  of  such  corporations 
affords  a  means  of  combining  individual  wealth  so  that  gigantic 
enterprises  are  undertaken  and  carried  through,  which  would 
otherwise  be  impossible  or  extremely  difficult. 

Nearly  all  railroad,  canal,  steamboat,  and  other  companies, 
doing  a  large  business,  are  incorporated. 

Private  corporations  may  be  formed  for  any  purpose  for  ***«tcn 
individuals  may  lawfully  associate  themselves. 

FORMATION. — Private  corporations  may  be  'xrfmed  by  the 
voluntary  association  of  any  three  or  more  persons,  a  majority  of 
such  persons  being  residents  of  the  State  Vn  which  the  corporation 
is  formed. 

Such  formation  is  under  general  statute.  Formation  by  char- 
ter is  superseded  so  far  as  private  corporations  are  concerned. 

ARTICLES  OF  INCORPORATION.— The  instrument  by 
which  a  private  corporation  is  formed,  is  called  "Articles  of  Incor- 
poration.'' Such  Articles  must  be  prepared  setting  forth, 

(1)  The  name  of  the  incorporation; 

(2)  Its  purpose; 

(3)  The  place  where  its  principal  business  is  to  be  transacted: 

(4)  The  term  of  existence,  not  exceeding  fifty  years; 

(5)  The  number  of  its  directors ;  not  less  than  three  ; 

(6)  The  amount  of  its  capital  stock,  and  the  number  of  shares 
thereof; 

(7)  The  amount  of  capital  stock  subscribed,  and  by  whom. 
These  Articles  are  filed  with  the  County  Clerk  of  the  count/ 

in  which  the  principal  business  of  the  company  is  to  be  trans- 
acted, and  a  certified  copy  filed  with  the  Secretary  of  State,  who, 
upon  such  filing,  must  issue  to  the  corporation,  under  seal  of  the 
State,  a  certificate  to  the  effect  that  such  Articles  are  filed. 

When  these  proceedings  are  had,  the  company  may  then  pro- 
ceed to  make  by-laws,  elect  officers,  and  transact  business  gener- 
ally, aR  provided  for  in  their  Articles. 


CORPORATIONS.  183 

Sometimes  no  capital  stock  is  issued.  In  such  case,  of  course, 
this  fact  must  be  stated  in  the  Articles. 

AGREEMENTS  FOR  STOCK.— When  an  undertaking  of 
great  magnitude  is  begun,  such  as  the  building  of  a  railroad,  it  is 
usual  for  those  who  first  enter  into  the  enterprise,  and  who  are 
called  "promoters,"  to  circulate  a  paper  called  a  subscription  paper, 
headed  something  like  this: 

"January  3d,  1897. 

"We,  the  undersigned,  hereby  subscribe  for,  and  agree  to  pur- 
chase the  number  of  shares  of  stock  set  opposite  our  respective 
names  at  a  price  of  $10  per  share,  at  any  time  within  One  (1)  year 
from  date  hereof"  (or,  "when  the  total  amount  of  10,000  shares 
are  subscribed,"  or  any  other  like  condition). 

Such  stock  subscriptions  are  binding  upon  the  signers,  tht 
consideration  being  the  detriment  caused  to  the  promoters  and 
the  co-signers  by  reason  of  the  withholding  of  money  from  other 
purposes  for  stock  payments. 

However,  in  case  of  conditional  agreements  like  the  above,  the 
subscription  does  not  become  absolutely  binding  until  the  condi- 
tion is  fulfilled. 

CERTIFICATE  OF  STOCK.— Stock  consists  of  the  money 
or  property  contributed  in  the  formation  of  the  corporation,  and 
because  of  many  people  having  interests  in  this  capital  stock,  the 
stock  is  said  to  be  divided  into  shares  represented  by  what  is  called 
a  "Certificate  of  Stock." 

These  Certificates  of  Stock  are  mere  pieces  of  paper  issued  to 
each  stockholder  for  the  purpose  of  certifying  to  the  number  of 
shares  which  he  holds. 

The  ordinary  form  of  a  stock  certificate  is  as  follows: 

Stockton,  Cal.,  Jan.  2d,  1897. 
No.  24.    ) 
10  Shares,   f        CAPITAL  STOCK,  $20,000.00 

THIS  CERTIFIES  That  Edward  Johnson  is  entitled  to  Ten 


184  COMMERCIAL   LAW. 

(10)  shares  of  the  capital  stock  of  THE  CALIFORNIA  HARD- 
WARE COMPANY;  transferable  on  the  books  of  the  Company 
only  by  endorsement  hereon  and  surrender  of  this  Certificate,  sub- 
ject to  the  By-laws  of  this  corporation. 

R.  BOYD,  Secretary. 

S.  MAXIN,  President. 
•fr*********** 

«j«  CORPORATE  SEAL.   «{. 
****+******* 

2000  shares,  $10  each. 

To  this  Certificate  is  attached  a  "stub"  which  remains  in  the 
Certificate  book.  The  "stub"'  contains  the  number  of  the  Certifi- 
cate, number  of  shares,  date,  name  of  person  to  whom  it  was 
issued,  etc.,  as  a  matter  of  memorandum  for  the  Secretary. 

This  stock  certificate,  as  has  been  intimated,  is  not  the  stock 
itself,  but  simply  the  evidence  of  ownership  of  stock;  hence  it  can 
be  changed  or  divided  into  any  number  of  certificates  of  less  num- 
ber of  shares,  not  greater  in  the  aggregate  than  the  number  of 
shares  it  certifies  to. 

TRANSFER. — A  certificate  of  stock  may  pass  from  hand  to 
hand  by  endorsement  in  a  manner  similar  to  the  transfer  of 
negotiable  paper,  though  no  holder  of  it  can  acquire  any  rights 
as, against  the  corporation  until  he  presents  the  certificate  to  the 
Secretary,  and  has  it  transferred  to  him  on  the  books  of  the  cor- 
poration. 

Suppose  Mr.  Johnson,  holder  of  ten  shares  as  shown  in  the 
form  above,  wishes  to  sell  live  shares  of  his  stock  to  Andrew  White. 
He  makes  an  endorsement  upon  the  back  of  the  certificate  in 
something  like  the  following  form: 

"I  hereby  sell,  assign,  and  transfer  to  Andrew  White,  Five  (oj 
shares  of.  the  capital  stock  of  THE  CALIFORNIA  HARDWARE 
COMPANY,  represented  by  the  within  certificate,  and  hereby 
appoint  R.  Boyd  my  attorney  to  transfer  the  said  stock  on  the 
books  of  said  corporation. 
"Dated  January  27th,  1898. 

"(Signed)  Edward  Johnson." 


CORPORATIONS.  185 

Andrew  White  then  takes  the  certificate  to  the  Secretary,  who 
cancels  it  and  issues  a  certificate  of  five  shares  to  White,  and 
another  certificate  of  five  shares  to  Johnson,  making  proper 
entries  on  his  own  books. 

CORPORATE  RESIDENCE.— As  we  have  seen  the  Articles 
of  Incorporation  are  required  to  set  forth  the  place  where  the 
principal  business  of  the  corporation  is  to  be  carried  on,  and  it 
also  requires  that  a  majority  of  the  incorporators  shall  be  resi- 
dents of  the  State  in  which  the  corporation  is  formed. 

The  reason  for  this  is,  to  fix  the  place  where  the  corporation 
may  sue  and  be  sued,  and  to  determine  under  what  law  it  shall 
be  governed. 

In  case  of  railroad  companies  and  other  such  corporations 
transacting  business  in  a  number  of  different  States  and  terri- 
tories, it  is  often  important  to  know  in  case  of  conflict  of  laws, 
under  what  law  the  corporation  must  do  business. 

As  a  general  rule  the  law  of  the  place  where  the  corporation 
has  its  principal  place  of  business  governs  it  in  the  conduct  of  its 
affairs,  and  other  States  recognize  the  rights  which  accrue  to  it 
under  the  laws  of  its  place  of  residence. 

In  case  of  foreign  corporations  having  general  agencies  in  this 
State,  the  law  of  the  State  will  control  as  to  the  manner  of  trans- 
acting their  business.  A  common  example  is  that  of  fire  and 
life  insurance  companies. 

PQ  WEIIS. — Every  corporation  has  such  power  to  act  in  the 
business  world  as  is  expressly  given  it,  or  is  necessarily  implied 
for  the  carrying  our  of  the  express  powers,  and  no  other  or  greater 
powers. 

Thus,  if  a  corporation  is  given  power  to  buy  and  sell  real 
estate,  there  is  also  necessarily  implied  the  power  to  execute  deeds 
of  real  estate. 

The  following  are  the  general  powers  given  to  corporations: 

(1)  Of  succession; 


186  COMMEKCIAL  LA77, 

(2)  To  sue  and  be  sued; 

(3)  To  make  and  use  a  common  seal; 

(4)  To  buy  and  sell  property; 

(o)  To  appoint  officers  and  allow  them  compensation; 

(6)  To  make  by-laws; 

(7)  To  admit  stockholders  or  members; 

(8)  Generally,  to  enter  into  any  obligations  or  contracts  essen- 
tial to  the  transaction  of  its  ordinary  affairs,  or  for  the  purposes 
of  the  corporation. 

PEEPETUAL  SUCCESSION.- -The  word  "perpetual"  does 
not  mean  that  the  corporation  may  never  at  any  time  be  dissolved 
or  cease  to  exist  by  lapse  of  time. 

It  means  simply  that  when  a  member  dies,  his  representatives 
at  once  succeed  to  his  interest  in  the  corporation,  and  the  corpo- 
ration continues  to  do  business  without  any  dissolution  or  account- 
ing. 

This  is  one  great  advantage  a  corporation  has  over  a  partner- 
ship. It  will  be  remembered  that  when  a  partner  dies,  the  part- 
nership is  dissolved  thereby. 

The  life  of  a  corporation,  however,  is  fixed  at  fifty  years,  conse- 
quently there  is  no  power  of  succession  for  a  longer  period  than 
fifty  years.  The  company  may,  however,  reincorporate  at  the  end 
of  such  period. 

TO  SUE  AND  BE  SUED.— A  corporation  may  be  sued  in 
any  court,  and  in  any  State  where  it  does  business;  and  it  may  also 
sue  in  any  State,  provided  it  has  properly  filed  its  Articles  of 
Incorporation,  according  to  the  law  of  that  State. 

TO  BUY  AND  SELL  PKOPERTY.— Every  corporation  has 
power  to  purchase,  hold,  and  convey  such  real  and  personal  estate 
as  the  purposes  of  the  corporation  may  require;  and  this  law  is 
to  be  construed,  as  regards  the  amount  of  property,  to  be  only  so 
much  property  as  is  reasonably  necessary  for  the  transaction  of  it* 
business,  and  no  more. 


CORPORATIONS.  18'< 

The  object  of  this  restriction  is  to  prevent  so  far  as  possible, 
the  accumulation  of  immense  landed  estates  by  rich  corporations 
to  the  detriment  of  individual  owners. 

It  sometimes  happens,  as  in  the  case  of  a  bank  loaning  money, 
with  real  estate  as  security,  that  the  corporation  is  obliged  to  buy 
a  great  deal  more  property  than  is  actually  necessary  for  the  con- 
duct of  its  business.  In  such  cases  the  rule  is  that  the  corpora- 
tion must  dispose  of  such  property  within  five  years. 

Under  the  words  "hold  real  estate"  it  has  been  decided  that 
a  corporation  may  hold  lands  as  trustee,  and  such  is  frequently 
done. 

TO  APPOINT  OFFICERS.— The  officers  of  a  corporation 
generally  consist  of  a  board  of  directors,  with  a  President,  Secre- 
tary, and  Treasurer,  and  often  a  managing  agent,  and  such  other 
subordinate  officers  as  may  be  necessary  for  the  particular  busi- 
ness transacted. 

Each  member,  or  stockholder,  has  a  right  to  vote  in  the  choos- 
ing of  directors,  a  stockholder  having  one  vote  for  each  share  of 
stock  he  owns. 

In  case  several  officers  are  to  be  elected,  a  stockholder  has  one 
vote  for  each  share  multiplied  by  the  number  to  be  elected.  This 
number  he  may  vote  all  for  one  officer  should  he  choose. 

A  stockholder  may  also  delegate  his  right  to  vote  by  giving 
authority  to  another  to  vote  for  him.  This  other  is  called  a 
proxy,  and  also  the  written  authority  which  is  given  is  called  a 
proxy,  and  is  simply  a  written  statement  to  the  effect  that  A 
authorizes  B  to  vote  A's  shares  of  stock  for  him. 

In  corporations  having  no  capital  stock  each  member  is 
entitled  to  one  vote  only. 

BY-LAWS. — Every  corporation  has  power  to  make  by-laws 
which  are  not  inconsistent  with  any  existing  law,  for  the  manage- 
ment of  its  property,  the  regulation  of  its  affairs,  and  for  the 
transfer  of  stock. 


188  COMMERCIAL   LAW. 

The  by-laws -of  a  corporation,  after  being  adopted  by  the  cor- 
poration, become  a  part  of  the  law  governing  the  directors  and 
:>ther  officers,  and  must  be  regarded  as  such. 

The  by-laws  usually  provide  in  detail  as  to  the  power  and 
duties  of  the  officers,  and  the  conduct  of  the  business  of  the  cor- 
poration. 

They  must,  in  addition  to  being  in  accordance  with  the  gen- 
eral law,  he  reasonable  in  their  application,  and  otherwise  proper. 

STOCKHOLDERS  OK  MEMBEES.— Any  number  of  mem- 
bers may  be  admitted  into  a  corporation,  and  any  number  of 
stockholders,  provided  that  the  amount  of  stock  issued  does  not 
exceed  the  amount. provided  for  in  the  Articles  of  Incorporation. 

Thus,  if  the  amount  of  stock  is  2,000  shares  there  may  be  five 
stockholders  of  four  hundred  shares  each,  or  there  may  be  two 
thousand  stockholders  holding  one  share  each,  or  it  may  be 
divided  in  any  other  manner  so  that  no  more  stock  is  issued  than 
what  is  provided  for. 

The  stock  may  be  assessed  for  the  purpose  of  raising  money  to 
pay  expenses  in  conducting  the  business  of  the  corporation. 

A  certain  per  cent  of  the  amount  of  capital  stock  is  usually 
reckoned  on  levying  an  assessment. 

The  corporation  has  power  to  sell  the  stock  of  such  holders  as 
do  not  pay  all  legal  assessments  or  instalments  due  on  stock,  in 
case  it  is  not  fully  paid  up  at  the  time  of  delivery. 

A  member  of  a  corporation,  which  is  not  formed  for  profit, 
and  in  which  he  has  no  pecuniary  interest,  may  be  for  proper 
cause  expelled  from  the  corporation,  and  even  in  extreme  cases  it 
has  been  held  that  he  may  be  expelled  even  where  he  has  some 
pecuniary  interest:  but  a  stockholder  can  not  be  expelled  for  any 
cause,  so  long  as  he  is  a  lawful  holder  of  stock. 

GENERAL  POWERS. — The  powers  of  corporations  have 
been  greatly  extended  in  recent  years,  and  as  above  stated  they 
may  enter  into  any  obligations  necessary  for  the  transaction  of 
the  ordinary  affairs  of  the  corporation. 


CORPORATIONS. 


189 


Thus,  they  may  take  mortgages,  or  give  mortgages  on  prop- 
erty, may  execute  or  accept  any  commercial  paper,  but,  as  stated 
in  the  general  discussion  above,  a  corporation  has  no  implied 
powers  except  such  as  are  necessary  to  the  proper  exercise  of  the 
express  powers  herein  enumerated. 

And  in  particular,  a  corporation  is  prohibited  from  issuing 
bills,  notes,  or  other  evidences  of  debt  for  circulation  as  money. 
'This,  of  course,  docs  not  apply  to  National  bank  notes,  for  National 
banks  are  incorporated  under  the  laws  of  the  United  States,  and 
governed  by  them,  and,  as  we  have  stated  in  the  first  chapter  of 
this  book,  where  a  State  law  is  in  conflict  with  a  law  of  the  United 
States,  the  law  of  the  United  States  must  control. 

The  statement,  however,  is  in  full  force  and  effect  so  far  as 
concerns  State  corporations,  whether  banking  corporations  or 
othenvise. 

OFFICERS'  "DUTIES.— The  Board  of  Directors,  and  other 
officers  of  a  corporation,  are  the  agents  of  the  corporation  in  the 
transaction  of  its  business,  and  as  such  agents  can  bind  the  cor- 
poration in  every  respect,  and  in  a  similar  manner  as  in  the  case 
of  partnership,  and  other  like  agencies. 

It  is  to  be  noted  as  a  peculiar  fact  that  a  corporation  can  only 
act  by  its  agents.  It  is  a  creature  of  the  law,  "intangible  and 
incorporeal/'  as  an  old  law  writer  expresses  it,  and  hence  can  only 
transact  business  by  and  through  its  agents. 

The  directors,  as  such  agents,  have  full  power  to  transact  all 
the  business  of  the  corporation. 

They  are  the  trustees  of  the  property  of  the  corporation,  and 
are  liable  for  any  breach  of  good  faith  in  the  transaction  of  the 
corporate  business. 

They  are  not  liable,  however,  for  damage  caused  by  lack  of 
good  judgment,  if  they  have  acted  in  good  faith. 

The  directors  of  a  corporation  are  usually  elected  for  a  speci- 
fied time,  and  can  not  be  removed  from  office  before  that  time  has 
expired,  except  for  misconduct  in  their  official  capacity. 


190  COMMERCIAL   LAW. 

Subordinate  officers,  such  as  business  managers  and  clerks,  are, 
01  course,  removable  at  any  time  by  the  Board  of  Directors,  unless 
under  special  contract. 

LIABILITY  OF  STOCKHOLDERS.— Each  stockholder  is 
individually  and  personally  liable  for  such  portion  of  the  cor- 
porate debts  as  the  amount  of  stock  owned  by  him  bears  to  the 
whole  of  the  subscribed  capital  stock,  and  to  no  further  extent. 

Thus,  if  A  owns  one-quarter  of  the  subscribed  capital  stock, 
he  is  liable  for  one-quarter  the  amount  of  any  and  all  debts  of 
the  firm. 

Thus  will  be  noticed  another  great  advantage  from  a  business 
standpoint  which  a  stockholder  in  a  corporation  has  over  a  part- 
ner in  a  partnership,  the  partner  being  liable  for  the  entire 
indebtedness  no  matter  how  small  his  interest  may  be. 

In  case  of  members  of  corporations  having  no  capital  stock, 
each  member  is  individually  and  personally  liable  for  his  propor- 
tion of  its  debts  and  liabilities,  and  no  further. 

Thus,  if  there  are  ten  members  each  one  is  liable  for  one-tenth 
of  the  indebtedness. 

DIVISION  OF  PROFITS.— In  case  of  gain  in  business,  stock 
corporations  usually  divide  such  profits  on  a  basis  of  so  many  dol- 
lars or  cents  for  each  share  of  stock  subscribed. 

Thus,  if  a  dividend  of  $2.00  per  share  is  declared,  A,  holding 
one  hundred  shares,  would  be  entitled  to  $200  of  the  profits;  B, 
holding  fifty  shares,  would  be  entitled  to  $100. 

Where  there  is  no  capital  stock,  in  the  absence  of  special  agree- 
ment, there  would  be  an  equal  division  of  all  profits  among  the 
members. 

DISSOLUTION. — Corporations  may  be  dissolved, 

(1)  By  forfeiture; 

(2)  By  voluntary  surrender  of  franchise; 

(3)  By  lapse  of  time. 

BY  FORFEITURE. — There  are  two  ways  in  which  a  cor- 
poration may  forfeit  its  corporate  rights. 


CORPORATIONS.  191 

(1)  By  non-user. 

The  law  provides  that  if  a  corporation  does  not  organize  and 
commence  the  transaction  of  its  business  within  one  year  from  the 
date  of  its  incorporation,  its  corporate  powers  cease,  and  this  with- 
out any  action  upon  the  part  of  the  corporation  or  the  State. 

(2)  By  misuser. 

In  case  a  corporation  violates  the  provisions  of  its  Articles  of 
Incorporation,  or  in  any  way  illegally  uses  its  franchise,  it  may  be 
dissolved  by  the  judgment  of  a  competent  court  on  suit  of  the 
attorney-general  of  the  State  in  an  action  brought  for  such  pur- 
pose. 

BY  VOLUNTARY  SURRENDER  OF  FRANCHISE.— A 
corporation  may  be  dissolved  by  the  Superior  Court  of  the  county 
where  its  principal  place  of  business  is  situated,  upon  its  volun- 
tary application  for  that  purpose. 

Before  it  can  be  dissolved,  a  petition  must  be  prepared  and 
presented  showing  that  at  least  two-thirds  of  the  stockholders  or 
members  wish  to  dissolve  it,  and  that  all  claims  and  demands 
against  the  corporation  have  been  satisfied  and  discharged. 

BY  LAPSE  OF  TIME.— A  corporation  is  dissolved  by  the 
expiration  of  the  time  limited  in  its  Articles  for  its  existence,  and 
if  no  time  be  limited,  it  is  dissolved  at  the  expiration  of  fifty  years 
from  filing  of  the  Articles  of  Incorporation. 

POWERS  AFTER  DISSOLUTION.— The  Board  of  Direc- 
tors are  after  dissolution  the  trustees  of  the  creditors  and  stock- 
holders or  members  of  the  corporation  dissolved,  and  have  full 
power  to  settle  the  affairs  of  the  corporation,  and  they  must  do 
so  in  all  events,  except  in  case  where  a  corporation  is  dissolved 
under  judgment  of  a  Court,  and  receiver  appointed  by  the  Court 
for  that  purpose;  and  even  in  any  event  should  the  directors  refuse 
or  be  incapable  of  acting,  a  court  has  power  on  proper  application 
to  appoint  a  receiver  to  attend  to  the  affairs  of  the  corporation. 


192  COMMERCIAL    LAW. 

JOINT  STOCK  COMPANIES  are  associations  of  persons  for 
the  transaction  of  business,  and  in  many  respects  are  like  corpora- 
tions. 

They  have,  as  the  name  indicates,  a  capital  stock,  and  they 
are  managed  by  a  Board  of  Directors. 

They  differ  from  corporations  mainly  in  the  liability  of  their 
stockholders.  In  this  respect  they  are  like  partnerships.  Each 
member  is  liable  for  all  of  the  debts,  if  any,  of  the  company. 

Joint  stock  companies  are  practically  obsolete.  Their  place 
is  taken  by  corporations  proper,  where  the  liability  of  stockholders 
and  members  is  limited. 


TEST  QUESTIONS. 

1.  The    cashier  of  an  incorporated   bank    cashes  a    check    to 
which  the  signature  has  been  forged.      Can    the    injured 
party  compel  the  corporation  to  bear  the  iossr 

2.  The  handling  of  money  by  the  cashier  of  an  incorporated 
bank  is  in  the  nature  of  a  bailment.     For  what  degree  of 
care  will  the  cashier  be  responsible  in  the  handling  of  the 
corporate  funds? 

3.  In  case  the  directors  of  a  corporation  wilfully  mismanage 
the  business  so  that  loss  occurs,  what  remedies,  if  any,  have 
the  stockholders? 

4.  Five   directors   are  to  be  elected.      A    has   twenty  shares. 

Explain  how  he  may  divide  his  vote  for  one  or  more  of 
the  directors  to  be  elected. 


CHAPTER   XXXI. 
FIRE  INSURANCE. 

DEFINITION. — Insurance  is  a  contract  whereby  one  under- 
takes to  indemnify  another  against  loss,  damage,  or  liability  aris- 
ing from  an  unknown  or  contingent  event. 

The  ordinary  forms  of  insurance  are  Fire  Insurance,  Marine 
Insurance,  Life  Insurance,  Health  Insurance,  and  Accident 
Insurance. 

INSURABLE  INTEREST.— "Every  interest  in  property  or 
any  relation  thereto,  or  liability  in  respect  thereof,  of  such  a 
nature  that  a  contemplated  peril  might  directly  damnify  the 
insured,  is  an  Insurable  Interest." 

The  above  definition  is  broad  enough  to  cover  almost  every 
conceivable  form  of  an  interest  in  property,  the  only  restriction 
being  that  it  must  be  such  an  interest  as  will  directly  injure  the 
insured  in  case  of  loss. 

Thus,  a  partner  may  insure  his  partnership  interest;  a  mort- 
gagor may  insure  his  interest;  a  mortgagee  may  insure  his  interest; 
also  a  lessee  and  lessor;  a  trustee,  and  a  bailee,  or  all  of  such  par- 
ties, may  place  insurance  on  the  same  property  at  the  same  time, 
provided  the  total  amount  of  insurance  so  placed  is  not  greater 
than  the  reasonable  value  of  the  property. 

THE  POLICY  is  the  written  instrument  in  which  the  con- 
tract of  insurance  is  set  forth.  It  must  contain, 

(1)  The  names  of  the  parties; 

(2)  The  rate  of  premium; 

(3)  The  property  insured; 

(4)  The  interest  of  the  insured  in  the  property; 


194  COMMERCIAL   LAW. 

(5)  The  risks  insured  against;  and 

(6)  The  period  during  which  the  insurance  is  to  continue. 
Tn  addition  to  these  general  items  contained  in  the  policy  there 

are  always  other  agreements,  statements,  and  conditions  inserted. 

Most  of  these  conditions  refer  to  the  care  of  the  property  by 
the  insured,  such  as  providing  that  he  shall  not  store  gunpowder  or 
other  inflammable  material  within  the  building;  that  he  shall  not 
leave  the  premises  vacant  except  for  short  periods  of  time;  that 
he  shall  use  all  reasonable  means  to  protect  the  property  from  fire, 
etc. 

PREMIUM. — The  premium  is  the  price  paid  the  insurance 
company  for  the  insurance.  It  is  usually  based  on  a  certain  per 
cent  of  the  amount  insured  for,  and  these  rates  vary  according  to 
the  supposed  danger  from  fire,  which  of  course  is  in  some  locali- 
ties greater  than  in  others,  and  would  be  greater  in  a  wooden 
building  than  in  a  brick  building. 

Most  companies  provide  that  in  case  the  insurance  policy  is 
canceled  before  the  expiration  of  the  term  of  its  existence, 
they  will  return  a  proportionate  part  of  the  premium. 

PROPEETY  INSURED.— The  property  insured  must  be 
accurately  described  in  the  policy,  together  with  the  interest  of 
the  insured  in  the  property. 

The  statements  made  by  the  insured  as  to  the  property  insured, 
and  his  interest  in  it,  are  taken  as  warranties  against  him,  and  if 
he  makes  false  statements,  particularly  in  regard  to  the  descrip- 
tion of  the  property,  the  material  of  which  it  is  made,  its  distance 
from  other  buildings,  and  in  such  like  matters,  he  can  not 
recover  insurance  money  in  case  of  the  destruction  of  the  property. 

RISKS  INSURED  AGAINST.— A  fire  insurance  policy 
covers  all  risk  of  loss  by  fire  from  whatever  cause  the  fire  may 
have  originated,  unless  certain  causes  are  particularly  excepted. 

Fires  caused  by  lightning  are  sometimes  excepted,  but  all 
accidental  fires  and  fires  set  by  incendiaries,  unless  set  by  the 
insured  himself,  are  included  in  the  insurance. 


FIRE  INSURANCE.  195 

Loss  or  damage  by  water  or  other  means  used  to  extinguish 
fire  is  also  covered  by  the  insurance  policy,  even  though  nothing 
is  said  in  regard  to  it  in  the  policy. 

If  a  material  change  is  made  in  the  risk,  such  as  the  build- 
ing of  a  new  room  to  a  house,  the  company  will  not  be  liable  in 
case  of  fire  for  any  damage,  unless  they  have  accepted  the  risk  as 
changed. 

AMOUNT  INSURED.— A  building  may  be  insured  for 
•$5,000,  and  it  may  be  entirely  destroyed  by  fire.  If  the  insurance 
company  can  show,  however,  that  the  building  was  not  actually 
worth  $5,000,  they  will  not  be  obliged  to  pay  any  more  than  the 
actual  value  of  the  building,  and  it  is  provided  in  most  policies 
that  the  insurance  company  and  the  insured  shall  each  appoint 
appraisers  to  appraise  the  loss;  and  also  that  the  company  may 
have  the  option  of  replacing  the  burned  premises  in  the  same  con- 
dition as  they  were  before  the  fire,  instead  of  paying  the  amount 
fixed  as  the  loss. 

Of  course,  in  the  event  that  the  building  is  but  slightly  dam- 
aged by  fire,  there  could  be  no  possibility  of  obtaining  the  full  face 
of  the  policy,  but  only  the  proportionate  amount  as  shown  by  the 
appraisement. 

INSURANCE  IN  SEVERAL  COMPANIES.— Where  a 
building  is  a  large  one,  and  the  amount  of  insurance  asked  for  is 
consequently  large,  a  company  will  sometimes  refuse  to  insure  for 
the  full  amount  required,  on  account  of  the  heavy  loss  to  the  com- 
pany should  the  building  be  destroyed. 

It  is  also  a  matter  of  good  business  policy  on  the  part  of  the 
insured,  not  to  insure  a  large  biiilding  for  a  large  sum  in  any  one 
company,  as  the  company  may  be  irresponsible  at  the  time  of  the 
burning,  or  may  delay  or  refuse  payment. 

Hence,  for  these  two  reasons  it  is  customary  to  divide  the  total 
amount  of  insurance  among  several  companies,  and  in  the  event 
of  fire  these  companies  bear  their  pro  rata  of  the  loss. 


196  COMMERCIAL   LAW. 

Thus,  a  building  is  insured  for  $50,000;  $20,000  is  taken  out 
with  the  A  Company;  $10,000  with  the  B  Company,  and  $20,000 
with  the  C  Company.  If  the  building  is  damaged  to  the  extent 
of  $10,000  the  A  and  C  Companies  each  must  pay  two-fifths  or 
$8,000,  and  the  B  Company  one-fifth  or  $2,000. 

This  method  of  pro-rating  between  the  companies  is  usually 
provided  for  in  the  contracts  of  insurance. 

PEK10D  OF  INSURANCE.— This  is  specified  in  each  policy 
of  insurance,  and  may  be  any  length  of  time  that  the  parties  may 
agree  upon. 

It  usually,  however,  runs  either  one  or  three  years,  and  in 
order  to  fix  the  time  exactly,  it  begins  with  12  o'clock  noon  on  a 
certain  day,  and  expires  at  12  noon  on  the  corresponding  day  one 
or  three  years  later. 

The  reason  for  taking  an  insurance  for  three  years  is  that  most 
companies  give  an  insurance  for  three  years  at  the  same  rate  and 
for  the  same  premium  as  if  issued  for  two  years. 

REINSURANCE. — It  will  be  observed  that  an  insurance 
company  which  agrees  to  pay  a  loss  in  case  of  destruction  by  fire 
is  damaged  in  case  of  such  destruction  to  the  extent  to  which  it 
has  insured  the  property  destroyed,  and  hence  has  itself  an  insur- 
able  interest  in  the  property  so  insured  by  it.  Such  insurance 
company  may  therefore  insure  in  some  other  company  in  favor  of 
itself  to  the  extent  of  its  own  insurance  on  the  building.  This  is 
called  reinsurance. 

A  company  obtaining  reinsurance  must,  of  course,  pay  for  it, 
and  hence  loses  money  by  the  transaction. 

The  reasons  for  reinsuring  may  be  that  the  company  has  dis- 
covered some  fact  concerning  the  property  which  makes  it  a  poor 
risk;  or  the  company  may  become  financially  embarrassed,  and  may 
wish  to  relieve  itself  from  some  of  its  liabilities  in  order  to  t>re- 
Berve  its  credit. 


FIRE    INSURANCE.  197 

ASSIGNMENT  OF  POLICY.— It  frequently  happens  that 
insured  property  is  sold,  mortgaged,  leased,  or  the  like,  and  when 
this  is  the  ease  the  insurable  interest  of  the  parties  changes. 

In  order  to  avoid  the  necessity  of  canceling  the  policy,  return- 
ing premium,  and  the  issuing  of  a  new  policy,  and  the  payment  of 
a  new  premium,  it  is  usually  provided  in  the  policy  that  it  may 
be  assigned  and  transferred  from  one  person  to  another,  with  the 
consent  of  the  company,  indefinitely,  so  that  in  case  of  loss  of 
property,  the  payment  may  be  actually  made  to  a  person  who  holds 
it,  after  having  passed  through  a  dozen  hands. 


TEST  QUESTIONS. 

1.  Suppose  that  A,  the  owner  of  a  house,  procures  insurance 
upon  it,  and  afterwards  employs  B  to  set  fire  to  the  house. 
If  the  fact  becomes  known  can  he  collect  the  insurance? 

2.  Suppose  A  throws  a  pan  of  ashes  containing  live  coals  into 
a  barrel  containing   inflammable    materials,  and  which  is 
directly  against  the  walls  of  his  house,  and  a  fire  is  thereby 
started  which  destroys  the  house.     Will  his  act  in  so  plac- 
ing the  pan  of  coals  be  such  an  act  of  carelessness  as  will 
defeat  his  right  to  collect  insurance? 

3.  A,  in  applying  for  insurance,  describes  his  property  as  being 

a  house  containing  brick  flues,  or  chimneys.  His  state- 
ment is  true,  but  it  is  also  true  that  one  flue,  which  is  con- 
stantly used,  is  made  of  tin.  A  fire  occurs  by  reason  of 
defects  in  this  tin  flue.  Will  the  representations  made  be 
such  a  material  concealment  of  facts  in  this  case  as  will 
relieve  the  insurance  company  from  paying  the  loss? 


CHAPTER  XXXII. 
MARINE  INSURANCE. 

DEFINITION. — Marine  insurance  is  an  insurance  against 
risks  connected  with  navigation  to  which  a  ship,  cargo,  freight- 
age, profits,  or  other  insurable  interest  may  be  exposed  during  a 
certain  voyage  or  a  fixed  period  of  time. 

The  subject  in  general  may  be  treated  exactly  as  in  case  of 
fire  insurance.  The  insurable  interest  may  be  of  the  same  nature, 
and,  as  is  stated  in  the  definition,  the  ship  or  any  part  of  its  cargo 
may  be  insured. 

THE  RISK. — A  marine  insurance  usually  covers  what  are 
generally  termed  "perils  of  the  sea,"  such  as  damage  from  rocks, 
shoals,  collisions,  piracy,  or  barratry,  the  latter  being  a  violation 
of  duty  on  the  part  of  the  master  of  the  vessel,  which  results  in 
injury  to  the  cargo. 

Loss  by  fire  is  also  insured  against,  as  well  as  incidental  loss 
or  damage  caused  by  water  or  other  fluid  used  in  extinguishing 
the  fire. 

The  time  of  insurance  is  a  matter  of  agreement  between  the 
parties.  It  is  usually  either  for  a  specified  time  agreed  upon,  or 
for  a  particular  voyage,  and  when  it  is  for  a  particular  voyage  the 
voyage  must  be  accurately  determined  in  the  policy;  and  if,  in 
such  case,  a  deviation  is  made  which  results  in  damage,  which 
would  otherwise  have  been  avoided,  the  insurance  company  will 
not  be  liable  unless  it  is  made  in  good  faith  upon  reasonable 
grounds  of  necessity. 

WARRANTIES. — The  warranties  in  the  case  of  marine  insur- 
ance are  of  much  more  importance  generally  than  in  the  case  of 
(198) 


MARINE    INSURANCE.  199 

fire  insurance,  and  the  law  especially  provides  that  in  all  cases 
there  is  an  implied  warranty  that  the  ship  is  seaworthy. 

A  ship  is  seaworthy  when  reasonably  fit  to  encounter  the  ordi- 
nary perils  of  the  voyage  contemplated  by  the  parties  to  the  policy. 

Thus,  it  seems  not  only  that  a  ship  itself  should  he  in  proper 
condition,  but  that  it  be  properly  laden,  provided  with  a  competent 
master,  a  sufficient  number  of  competent  officers  and  seamen,  and 
all  necessary  equipments,  such  as  ballast,  cables,  anchors,  food, 
water,  fuel,  and  lights. 

Such  seaworthiness  is  in  itself  an  insurance  against  the  ordi- 
nary perils  of  the  sea  and  damages  of  navigation.  The  insurance 
policy  does  not  cover  this.  It  is  only  the  extraordinary  perils 
which  are  insured  against. 

As  in  the  case  of  fire  insurance,  fraud  in  the  nature  of  conceal- 
ing any  facts  material  to  the  risk,  will  avoid  the  policy  in  so  far 
as  it  may  be  affected  thereby. 

BASIS  OF  INSURANCE.— The  policy  may  be  what  is  called 
an  "open"  policy,  that  is,  one  in  which  the  value  of  the  thing 
insured  is  not  agreed  upon,  but  is  left  to  be  ascertained  in  case  of 
loss,  and  in  such  case  the  value  is  to  be  based  on  the  value  at  the 
time  the  insurance  was  effected;  or  it  may  be  a  "valued"  policy, 
that  is,  one  in  which  it  is  agreed  that  the  value  of  the  ship  or  cargo 
shall  be  fixed  at  a  specified  sum. 

In  such  cases  the  rule  of  payment  for  loss  is  different  from 
that  of  fire  insurance. 

The  company  in  case  of  loss  only  pays  the  proportion  of  loss 
which  the  amount  named  in  the  policy  bears  to  the  valuation; 
e.  g.,  if  a  cargo  is  valued  at  $20,000,  and  it  is  insured  for  $10,000, 
and  the  cargo  is  entirely  destroyed  or  lost,  the  insurance  company 
must  pay  $10,000,  which  is  one-half  of  the  valuation;  but  if  only 
one-half  of  the  cargo  is  destroyed,  the  company  will  only  be  re- 
quired to  pay  one-half  of  the  amount  insured  for,  or  $5,000. 

When  the  ship  and  cargo  are  so  badly  damaged  as  to  reduce  the 


200  COMMERCIAL   LAW. 

parts  remaining  tc  less  than  half  the  original  value,  the  owner 
may  "abandon"  or  relinquish  to  the  insurance  company  all  claim 
upon  the  thing  insured,  and  demand  insurance  from  the  company 
as  for  a  total  loss. 

The  abandonment,  however,  must  be  neither  partial  nor  con- 
ditional, and  must  be  made  within  a  reasonable  time  after  informa- 
tion of  the  loss,  and  upon  notice  given  to  the  insurer,  either  oral 
or  in  writing. 

In  legal  effect  an  abandonment  is  equivalent  to  a  transfer  by 
the  insured  of  his  interest  to  the  insurer,  with  all  chances  of  re- 
covery and  indemnity. 

The  abandonment  when  once  made  and  accepted,  is  irrevoca- 
ble, unless  it  can  be  shown  that  the  loss  did  not  exceed  one-half 
of  the  subject  matter  of  the  insurance. 

Of  course,  an  insured  need  not  abandon  the  property  unless  he 
chooses,  but  the  insurer  must  accept  an  abandonment  in  proper 
case  unless  by  his  contract  he  has  declined  to  do  so. 


TEST  QUESTIONS. 

1.  A  vessel  runs  on  the  rocks  and  finally  becomes  a  total  loss. 

The  owners  of  the  cargo  abandon  it  to  the  insurance  com- 
pany, and  are  paid  as  for  a  total  loss.  The  company  suc- 
ceeds in  saving  three-fourths  of  the  cargo,  before  the  ship 
breaks  up.  Could  either  party  claim  the  abandonment 
void  on  the  ground  that  not  more  than  one-half  of  the 
cargo  was  destroyed? 

2.  A  ship  and  cargo  are  regularly  insured  and  start  on  a  voy- 
age.     Her  drunken    captain    causes  the  vessel    to  be  run 
upon  shoals  where  ship  and  cargo  are  lost.      Discuss  the 
right  of  the  insured  to  recover  insurance  money. 


CHAPTER  XXXIII. 
LIFF,  AND  ACCIDENT  INSURANCE. 

DEFINITION.— -Life  insurance  is  a  contract  by  which  one 
party,  called  the  insurer,  agrees  to  pay  a  sum  of  money  to  another 
when  a  certain  person,  called  the  insured,  dies,  or  reaches  a  certain 
age. 

The  insured  may  have  the  policy  made  payable  to  himself,  and 
if  he  reaches  a  certain  age  it  is  paid  to  him.  If  he  dies  before 
that  time  it  belongs  to  his  estate. 

Generally,  however,  there  are  three  parties  to  the  insurance, — 
the  insurer,  the  insured,  and  a  third  party,  called  the  beneficiary, 
to  whom  the  money  is  to  be  paid  on  the  death  of  the  insured. 

INSUEABLE  INTEREST.— Every  person  has  an  insurable 
interest  in  the  life  and  health 

(1)  Of  himself; 

(2)  Of  any  person  on  whom  he  depends  wholly  or  in  part  for 
Education  or  support; 

(3)  Of  any  person  under  a  legal  obligation  to  him  for  the  pay- 
ment of  money,  or  respecting  property  or  services,  of  which  death 
or  illness  might  prevent  or  delay  the  payment;  or 

(4)  Of  any  person  upon  whose  life  any  estate  or  interest  vested 
in  him  depends. 

Thus,  a  sister,  mother,  brother,  wife,  or  other  relative,  or  any 
one  in  fact,  whether  a  relative  or  not,  has  an  insurable  interest  in 
the  life  of  one  whom  he  depends  upon  in  any  degree  for  his  sup- 
port or  education. 

So  a  partner  may  have  an  insurable  interest  in  the  life  of  his 

(201) 


202  COMMERCIAL,   LAW. 

partner;  a  creditor  in  the  life  of  his  debtor;  a  tenant  for  the  life 
of  another,  in  that,  other's  life. 

It  does  not  matter  whether  the  relations  of  debtor  and  cred- 
itor, or  husband  and  wife,  or  other  relation  continue,  or  whether 
the  dependent  state  continues  after  the  insurance  is  taken  out  or 
not,  it  is  sufficient  if  the  relation  exists  at  the  time  of  taking  out 
the  insurance. 

This  is,  in  this  respect,  unlike  fire  insurance,  where  it  will  be 
remembered  that  the  interest  must  exist  at  all  times  during  the 
life  of  the  policy. 

In  case  where  a  creditor  takes  out  a  policy  upon  the  life  of  his 
debtor,  and  the  debtor  dies,  he  may  claim  the  full  amount  of  the 
policy,  and  the  amount  of  the  debt  in  addition;  but  where  the 
debtor  takes  out  a  policy  on  his  own  life,  made  payable  to  the 
creditor,  merely  as  security,  the  creditor  must  return  whatever 
surplus  there  may  be,  if  any,  of  the  proceeds  of  the  policy,  to  the 
estate  of  the  debtor. 

The  policy  of  insurance  may  pass  by  transfer,  will,  or  succes- 
sion to  any  person,  whether  he  has  an  insurable  interest  or  not, 
and  such  person  may  recover  upon  it  whatever  the  insured  might 
have  recovered. 

APPLICATION  FOE  POLICY.— The  law  allows  insurance 
companies  great  latitude  in  regard  to  the  contract,  and  hence  the 
various  insurance  companies  have  their  own  rules  and  regulations 
regarding  the  procuring  of  insurance. 

In  all  of  them,  however,  the  applicant  for  insurance  must 
answer  in  writing  a  long  list  of  questions  in  regard  to  his  personal 
habits,  as  to  the  use  of  intoxicants  and  tobacco,  opium  and  other 
injurious  poisons,  and  regarding  the  present  state  of  his  health, 
and  whether  he  has  had  illness,  and  its  nature;  also  as  to  the 
number  of  brothers  and  sisters  he  has,  their  ages  and  state  of 
health,  the  ages  of  his  parents,  If  living,  and  their  age  at  their 
death,  if  dead;  the  ages  at  death  of  his  grandparents,  and  many 


LIFE   AND   ACCIDENT   INSURANCE.  203 

other  questions  which  will  guide  the  company  in  the  issuance  of 
a  policy. 

A  company  is  not  obliged  to  insure  all  applicants,  but  only 
those  whose  health,  habits,  and  family  records  are  such  as  render 
them  what  is  called  a  "good  risk." 

Each  company  in  addition  to  requiring  the  applicant  to  answer 
the  questions,  requires  him  to  pass  a  physical  examination  by 
some  physician  designated  by  the  company. 

If  the  report  of  the  physician  is  favorable,  and  the  questions 
are  satisfactorily  answered,  a  policy  will  be  issued. 

The  answers  made  by  the  insured,  if  he  is  accepted,  form  a 
part  of  the  contract  of  insurance,  and  if  he  has  made  materially 
false  statements,  the  policy  may  be  avoided  by  the  company. 

THE  POLICY. — As  stated  in  the  previous  section,  the  law 
allows  great  latitude  to  the  insurance  companies,  and  they  may 
issue  policies  containing  about  such  provisions  and  statements  as 
they  choose,  and  these  vary  materially  with  different  companies. 

There  are  usually  provisions  to  the  effect  that  the  policy  will 
become  void  if  a  person  travels  to  great  distances  from  his  resi- 
dence without  permission  of  the  company,  or  removes  from  the 
temperate  to  the  torrid  or  frigid  zones,  or  otherwise  exposes  hiin- 
gelf  to  great  changes  of  climate. 

Policies  usually  provide  that  a  person  must  not  change  his 
occupation  to  a  more  dangerous  one  without  consent  of  the  com- 
pany, and  in  cases  where  persons  in  dangerous  occupations,  sucE 
as  miners  or  ponder  makers,  are  insured  at  all,  it  is  only  at  a  high 
rate  of  premium. 

The  premium  on  the  policy  is  always  to  be  paid  in  advance, 
and  the  policy  usually  provides,  in  case  this  is  not  done,  that  the 
policy  shall  lapse  and  become  null  and  void. 

In  addition  to  these  statements,  the  policy  contains  the  names 
of  the  insured  and  the  beneficiary,  and  che  amount  of  premium. 


204  COMMERCIAL    LAW. 

KINDS  OF  INSURANCE. — Insurance  companies  have  mul- 
tiplied rapidly  in  recent  years,  and  plans  of  insurance  have  multi- 
plied nearly  as  rapidly. 

What  are  known  as  "straight  life"  companies  agree  to  pay  a 
certain  amount  at  the  death  of  the  insured  on  condition  of  pay- 
ment of  certain  premiums. 

An  "endowment"  insurance  is  a  plan  by  which  premium  is  to 
be  paid  for  a  certain  number  of  years,  and  at  the  end  of  that  time 
the  face  of  the  policy  is  to  be  paid  to  the  insured  himself. 

This  plan  amounts  to  a  mere  investment  of  small  sums  for  a 
certain  time,  to  be  returned  with  interest. 

There  are  also  various  fraternal  associations  which  provide 
insurance  under  a  great  variety  of  plans,  under  the  general  term 
of  "the  assessment  system." 

Such  societies  usually  have  no  surplus,  but  depend  on  a  large 
number  of  members  paying  each  small  assessments  for  the  pay- 
ment of  their  death  losses. 

ACCIDENT  INSURANCE.— This  is  a  class  of  insurance,  as 
the  name  indicates,  where  persons  are  indemnified  by  insurance 
companies  in  case  of  accident,  such  as  the  loss  of  an  arm  or  hand, 
or  the  injury  to  an  eye. 

There  are  companies  who  make  a  special  business  of  insuring 
travelers  by  rail,  or  otherwise,  against  accident.  The  policy  usu- 
ally contains  a  long  list  of  injuries,  with  a  corresponding  list  of 
amounts  which  will  be  paid;  e.  g.: 

Loss  of  forefinger $200 

Loss  of  hand 300 

Loss  of  arm 400 

Loss  of  eye 300,  etc. 

providing  in  all  cases  that  the  aggregate  shall  not  exceed  a  certain 
sum  agreed  upon  in  the  policy. 

Such  policy  usually  provides  also  for  a  certain  sum  weekly  in 
the  nature  of  benefits  while  the  insured  is  disabled  by  reason  of 
the  injury.  The  time  is  usually  limited  to  a  certain  number  of 
weeks. 


LIFE   AND   ACCIDENT    INSURANCE.  205 

PAYMENT  OF  LOSS.— The  policy  usually  provides  that  in 
case  of  death,  insurance  money  is  to  be  paid  within  a  certain  time, 
upon  proper  proofs  of  death  or  injury  being  presented. 

A  life  policy  usually  provides  that  an  investigation  concerning, 
the  cause  of  death  may  be  made,  and  if  it  be  found  that  the  de- 
ceased was  killed  in  a  duel,  or  that  he  died  by  his  own  hand,  they 
may  refuse  to  pay  the  money. 

The  courts,  however,  have  generally  held  that  a  person  who 
commits  suicide  is  not  in  his  right  mind,  and  that  the  beneficiary 
must  not  suffer  for  the  act  of  an  insane  person;  hence  they  have 
held  that  such  conditions  in  a  policy  are  void,  except  where  it 
can  be  plainly  shown  that  there  was  criminal  intent  on  the  part 
of  the  insured  to  defraud  the  company. 

So  in  the  case  of  accident  policies,  provisions  are  made  that  in 
case  of  negligence  or  wilful  design  to  injure  himself,  on  the  part 
of  the  insured,  the  policy  shall  be  void. 

Ordinarily,  then,  the  policy  is  payable  within  a  limited  time 
after  the  death  of  the  insured,  or  his  disability,  and  payment  can 
be  enforced  by  resort  to  the  Courts,  if  refused. 


TEST  QUESTIONS. 

1.  A  obtains  insurance  upon  his  life  in  favor  of  a  child,  which 
he  states  is  his  own,  and  which  is  depending  upon  him  for 
support.     At  A's  death  it  is  discovered  that  A  was  not  the 
father  of  the  child.     Can  the  insurance  company  refuse 
payment  on  that  ground? 

2.  A  son  is  beneficiary  under  a    policy  of    insurance  on  his 
father's  life,  taken  out  while  the  son  was  dependent  upon 
the  father  for  support.     In  course  of  time,  the  father  be- 
comes dependent  upon  the  son  for  support.     What  effect 
will  this  have  upon  the  validity  of  the  insurance? 


206  COMMERCIAL   LAW. 

3.  In  answering  the  usual  questions  on  application  for  insur- 
ance, a  man  states  that  his  grandfather  died  of  pneumonia. 
It  afterwards  appears  that  in  fact  the  grandfather  died  of 
smallpox.  Will  such  a  mis  statement  invalidate  the  pol- 
icy? 


CHAPTER  XXXIV. 
EEAL  PROPERTY. 

uEFINITION. — Real  property  consists  of  land  and  every- 
thing that  is  contained  on  or  in  the  land,  and  affixed  permanently 
thereto. 

Hence  under  the  above  definition,  all  minerals,  oils,  and  water, 
including  streams  flowing  through  the  land,  are  a  part  of  the 
realty;  so  also  are  houses,  barns,  fences,  and  other  like  improve- 
ments placed  in  a  permanent  manner  on  or  in  the  soil. 

All  treeo  are  a  part  of  the  realty;  but  it  is  held  that  crops  of 
grain  arc  personal  property. 

HISTORY.— Most  of  the  nations  of  Europe,  including  Eng- 
land, were  at  some  time  conquered  by  force  of  arms,  and  as  land 
began  to  be  tilled  and  become  more  valuable,  it  was  then  taken 
away  from  weaker  nations  and  divided  by  the  conqueror  amongst 
his  favorites.  These  in  turn  divided  their  holdings  under  some 
sort  of  rent,  usually  under  agreement  that  the  renter  should  serve 
in  the  army  when  called  upon;  and  so  under  this  system,  which 
came  to  be  known  as  the  "feudal  system/'  the  land  was  all  owned 
by  the  king  or  ruler,  and  all  others  simply  had  rights  in  the  prop- 
erty in  the  nature  of  leases. 

A  similar  theory  has  been  extant  in  the  United  States  since 
the  Revolutionary  War,  though  it  differs  in  this,  that  the  United 
States  Government  has  made  actual  sales  of  government  land  to 
purchasers,  giving  them  full  title. 

As  between  individuals,  however,  a  right  to  real  property  is 
not  always  an  absolute  ownership.  These  rights  are  called 
estates. 

(807) 


208  COMMERCIAL   LAW. 

KINDS  OF  ESTATES.— Estates  in  real  property,  in  respect 
to  the  duration  of  their  enjoyment,  are  either, 

(1)  Perpetual  estates; 

(2)  Estates  for  life; 

(3)  Estates  for  years;  or 

(4)  Estates  at  will. 

PEKPETUAL  ESTATES,  sometimes  called  estates  in  fee 
simple,  are  those  in  which  there  is  a  full  and  complete  ownership 
in  the  property. 

A  person,  then,  who  has  a  perpetual  estate  may  sell,  mortgage, 
lease,  or  otherwise  encumber  the  property;  may  cut  wood  upon  it, 
or,  in  general,  do  any  and  all  acts  in  regard  to  it  which  can  be 
conceived  of,  so  long  as  he  does  not  injure  the  property  of  his 
neighbor  in  so  doing. 

The  word  "perpetual'*  does  not  mean  that  he  must  hold  it  for- 
ever, but  that  it  is  his  absolutely,  and  he  may  hold  it  for  an  indef- 
inite time. 

In  case  of  his  death,  the  property  descends  to  his  heirs.  If 
he  leaves  no  heirs,  and  no  will  directing  its  distribution  to  other 
parties,  the  property  reverts  to  the  state,  and  is  sold,  and  the  pro- 
ceeds applied  to  the  public  school  fund  of  the  state. 

ESTATES  FOE  LIFE.— As  the  name  indicates,  an  estate  for 
life  is  an  interest  in  real  property,  giving  the  use  of  such  prop- 
erty during  the  person's  life  who  thus  holds  it. 

A  person  may  have  an  estate  for  life,  and  at  his  death  the 
property  then  reverts  to  whomever  held  the  full  ownership  or  per- 
petual estate. 

In  other  words,  a  life  estate  is  a  part  of  a  perpetual  estate.  The 
holder  of  a  life  estate  may  use  the  property  in  all  ordinary  ways, 
but  he  has  no  power  to  sell  the  land,  or  to  mortgage,  or  even  lease 
it,  except  for  a  period  not  longer  than  his  own  life. 

In  the  case  of  a  perpetual  estate,  as  we  have  noticed,  the  owner 
may  do  any  act,  even  to  chopping  down  all  timber  or  burning  all 
buildings  on  his  property  if  he  chooses. 


REAL    PROPERTY.  20S 

The  holder  of  a  life  estate,  however,  must  not  cut  timber,  more 
than  he  needs  for  his  use,  nor  burn  nor  destroy  any  buildings,  or 
in  any  way  injure  the  property. 

If  he  does,  he  is  said  to  be  guilty  of  "waste,"  and  is  liable  for 
all  damage  to  the  holder  of  the  perpetual  estate. 

"Waste"  may  be  even  committed  by  negligently  allowing 
buildings  or  fences  to  fall  down  for  want  of  proper  and  ordinary 
repairs. 

The  holder  of  a  life  estate  is  not  bound  to  make  extraordinary 
repairs,  such  as  building  a  new  house.  He  is  bound  to  pay  all 
taxes  during  the  time  he  holds  the  property. 

While  the  life  estate  terminates  at  the  moment  of  death  of  the 
person  holding  it,  nevertheless  his  heirs  are  entitled  to  any  crops 
which  may  be  growing  on  the  land  as  result  of  his  labors,  and  may 
enter  the  land  for  the  purpose  of  removing  them. 

ESTATES  FOR  YEAES.— This  is  a  very  common  form  of 
estate,  and  is  granted  under  what  is  commonlj  known  as  a  lease. 

The  holder  of  a  perpetual  estate,  or  an  owner,  is  said  to  lease 
land  to  another,  or  give  him  an  estate  for  years  in  it. 

The  holder  of  an  estate  for  years  has  the  same  right  to  use  the 
land  as  the  holder  of  an  estate  for  life. 

There  is  one  important  difference  which  is  to  be  noted  between 
a  holder  of  a  life  estate  and  a  holder  of  an  estate  for  years,  and 
that  is  in  regard  to  the  crops  or  emblements,  as  they  are  called, 
which  may  remain  at  the  expiration  of  the  term. 

In  the  case  of  the  estate  for  life,  the  heirs  of  the  Hie  estate 
holder  may  claim  them  after  his  death. 

This  is  so  for  the  reason  that  he  does  not  know  the  hour  of  his 
death,  and  could  not  be  expected  to  do  otherwise  than  provide 
for  future  crops  at  all  times,  while  in  the  case  of  a  tenant  for 
years,  he  .knows  definitely  when  his  lease  will  expire,  and  if  he 
HUB  crops  in,  and  which  mature  after  the  expiration  of  his  lease, 
it  is  his  own  fault,  and  he  must  suffer  for  it. 
14 


210  COMMERCIAL    LAW. 

Of  course,  he  may  especially  agree,  under  his  contract  for 
leasing,  that  he  may  be  allowed  to  remove  emblements  after  the 
expiration  of  his  lease.  A  lease  of  farming  land  is  limited  by 
statute  to  ten  years,  and  a  lease  of  city  lots  to  fifty  years. 

ESTATES  AT  WILL.— An  estate  at  will  is  created  when  the 
owner  of  real  property  permits  another  to  occupy  it  without  any 
lease  or  agreement  to  pay  rent,  and  such  tenant  merely  takes  care 
of  the  land  for  the  owner. 

It  is  often  created  simply  by  neglect  of  the  owner,  as  where  a 
tenant  holds  over  after  the  expiration  of  his  lease,  or  where  a 
tenant  takes  possession  without  any  authority  whatever. 

In  such  estates  the  owner  may  terminate  the  holding  at  any 
time,  without  notice. 

REVERSIONS  AND  REMAINDERS.— A  reversion  is  the 
residue  of  an  estate  left  in  the  grantor  or  his  successors,  and  com- 
mences where  a  particular  estate  ends;  as  an  owner  of  land  gives 
B  an  estate  for  life  in  the  -land.  When  B  dies  the  land  reverts 
to  the  owner.  So  if  A  has  a  life  estate  he  may  lease  the  land  for 
a  year,  and  at  the  end  of  the  year,  if  A  is  alive,  the  land  reverts 
to  him. 

When  a  future  estate,  other  than  a  reversion,  is  dependent  on 
a  precedent  estate  it  may  be  called  a  remainder;  e.  g.,  A,  the  full 
owner,  may  grant  an  estate  for  life  to  B,  and  at  the  same  time 
grant  to  C  an  absolute  ownership  or  perpetual  estate,  to  begin 
after  B's  death.  That  is,  A  has  a  perpetual  estate;  he  gives  part 
of  it  to-B  and  the  remainder  to  C. 

EASEMENTS  are  such  burdens  or  rights  attached  to  land 
adjoining  other  land,  as  incidents  or  appurtenances;  as  the  right 
of  way  over  the  land  of  a  neighbor  to  reach  a  highway,  the  right 
of  using  a  wall  as  a  party  wall  and  as  support  for  a  building,  a 
wall  which  is  placed  on  the  line  dividing  property  belonging  to 
two  persons. 

Other  easements  are:  The  right  of  pasture;  the  right  of  fish- 


REAL  PROPERTY.  211 

ing;  the  right  of  taking  game;  the  right  of  having  water  flow  with- 
out disturbance. 

These  rights  are  obtained  either  by  long  usage,  or  custom,  or 
are  attached  to  land  by  statute. 

It  is  to  be  noted  that  while  the  right  of  taking  game  is  granted, 
still  if  an  owner  of  land  posts  notices  forbidding  "hunting,"  any 
one  who  enters  upon  land  for  such  purpose  is  liable,  not  for  the 
shooting  of  game,  but  for  the  trespass  upon  the  land. 

STREAMS. — A  person  having  an  estate  in  land  may  use  the 
water  of  a  stream  flowing  through  the  land,  or  on  its  boundaries, 
for  all  purposes  which  lie  may  desire,  such  as  the  watering  of 
stock  and  irrigation  of  the  land,  so  long  as  he  does  not  use  it 
to  the  injury  of  others,  such  as  using  all  of  the  water  in  the 
stream,  or  contaminating  it  with  rubbish  which  would  be  carried 
to  the  land  of  others  to  their  injury. 

So,  also,  he  may  not  change  the  course  of  the  stream  unless  he 
returns  it  to  the  natural  channel  before  it  leaves  his  land. 

In  case  of  a  stream  forming  a  boundary,  if  it  is  a  navigable 
stream,  his  title  extends  only  to  high  water  mark;  but  if  the  stream 
be  not  navigable,  his  title  extends  to  the  middle  of  the  stream. 

The  reason  for  this  difference  is  that  the  navigable  waters  are 
public  property. 

HIGHWAYS. — The  state,  county,  or  .municipal  government 
may  designate  such  roads  and  streets  as  may  be  proper  for  the 
convenience  of  the  public,  and  set  them  apart  for  public  use. 

All  such  lands  so  set  apart  are  termed  highways.  Eoads  are. 
often  made  along  the  boundaries  between  lands  owned  by  differ- 
ent persons,  each  owner  conveying  the  right  of  way  to  a  certain 
part. 

In  such  cases,  each  land-owner  owns  the  land  as  before  to 
the  middle  of  the  highway,  and  in  case  the.  highway  is  ever  aban- 
doned by  the  public,  the  full  ownership  reverts  to  him. 

As  the  land  is  only  given  for  the  use  of  the  public,  the  owner 


212  COMMERCIAL   LAW. 

has  the  right  of  pasturage  or  of  cutting  trees  upon  it,  or  doing 
any  other  act  in  relation  to  it  which  does  not  affect  its  use  as  a 
public  highway. 

EMINENT  DOMAIN.— The  original  and  ultimate  right  to 
all  property,  real  and  personal,  is  in  the  state. 

Under  what  is  called  Eminent  Domain,  the  state  may  acquire 
title  to  private  property  for  public  use.  Thus  it  may  acquire 
property  for  road  purposes,  for  toll  bridges,  or  ferry  purposes,  for 
wharves,  chutes,  or  piers,  for  reclamation  purposes,  sewerage  pur- 
poses, telegraph  lines,  electric  light  lines,  canals,  reservoirs,  dams, 
ditches,  and  various  like  public  uses. 

Before  any  private  property  can  be  appropriated  to  public  use, 
under  the  right  of  eminent  domain,  a  proper  proceeding  must 
be  brought,  showing, 

(1)  That  the  use  to  which  it  is  to  be  applied  is  a  use  author- 
ized by  law; 

(2)  That  the  taking  is  necessary  to  such  use; 

(3)  If  already  appropriated  to  public  use,  that  the  public  use 
to  which  it  is  to  be  applied  is  a  more  necessary  public  use. 

As  in  the  case  with  highways,  when  such  public  use  is  aban- 
doned, the  land  so  taken  reverts  to  the  former  owners. 

In  all  cases  where  land  is  taken  under  the  right  of  eminent 
domain,  reasonable  compensation  must  be  given  to  the  owner  of 
the  land  so  taken. 

This  is  determined  usually  by  appraisers,  who  are  presumed 
to  be  disinterested  parties. 


TEST  QUESTIONS. 

1.  A  leases  a  vineyard  for  one  year,  which  expires  October 
15th.  It  being  an  unusually  "late  year"  all  of  the  grapes 
axe  not  fit  for  picking  when  the  lease  expires.  May  he 


REAL    PROPERTY.  213 

enter  the  premises  and  remove  them  after  the  expiration 
of  the  lease? 

2.  A,  the  owner  of  land  bounded  by  a  navigable  stream,  at- 
tempts to  prohibit  fishing  in  the  stream.     May  he  do  so? 

3.  If  a  person  who  has  an  estate  for  years  buys  the  perpetual 

estate  in  the  same  property,  does  that  thereby  terminate 
his  estate  for  years? 

4.  A  has  an  estate  for  life.     May  he  sell  his  right  to  the  estate, 

and  to  its  use  and  occupancy  until  his  death? 


CHAPTER  XXXV. 

DEEDS. 

DEFINITION. — A  deed   is   a  written   instrument   by  which 
the  title  to  real  property  is  transferred  from  one  person  to  another. 
The  essentials  are  as  follows: 
(1)  A  sufficient  writing; 
.  (2)  Proper  parties, — grantor  and  grantee; 

(3)  A  thing  to  be  granted; 

(4)  A  consideration; 

(5)  Execution,  i.  e.,  signing; 

(6)  Acknowledgment; 

(7)  Delivery  and  acceptance; 

(8)  Recording. 

These  will  be  considered  in  their  regular  order. 

A  SUFFICIENT  WRITING.— In  order  that  the  deed  may 
be  a  good  contract,  the  writing  should  be  clear  and  distinct,  and 
the  language  free  from  uncertainty. 

It  is  not  necessary  that  there  should  be  strict  observance  of 
the  rules  of  grammar,  as  long  as  the  intention  is  clear. 

It  may  be  as  other  contracts,  either  written  or  printed,  or  in 
any  way  engrossed  upon  an  impressible  substance,  but  it  must  be 
complete  before  it  is  delivered. 

Any  alterations  or  filling  out  of  the  blanks  after  delivery,  will 
not  give  life  to  the  deed,  and  where  alteration  is  made  before 
delivery,  it  should  be  noted  by  the  officer  who  takes  the  acknowl- 
edgment. 

(214) 


DEEDS.  215 

PARTIES. — To  make  a  valid  deed  there  must  be,  of  course, 
a  competent  grantor.  He  must  own  the  property  and  have  the 
capacity  to  convey  it. 

As  we  have  seen  under  the  general  discussion  of  contracts, 
any  person  can  make  a  deed  who  is  not  an  infant,  of  unsound 
mind,  or  deprived  of  civil  rights. 

As  to  grantees,  the  same  rules  exist  in  regard  to  competency, 
except  that  a  person  under  disability  may  accept  gifts  of  land, 
or  any  conveyance  which  does  not  require  action  upon  his  part;, 
so  if  there  is  any  condition  imposing  duties  on  the  grantee,  he 
can  not  be  compelled  to  perform  them,  if  under  disability. 

The  names  of  the  grantor  and  grantee  must  be  written  in 
the  deed.  They  are  necessary  in  order  to  render  the  parties  cer- 
tain. 

In  deeds  of  property  owned  by  both  a  husband  and  wife  (called 
community  property),  both  must  sign  the  deed  to  make  the  con- 
veyance valid  under  all  circumstances. 

In  case  of  the  separate  property  of  either,  only  the  one  who 
owns  it  need  sign  the  deed.  It  is  customary,  however,  to  require 
the  signature  of  each  party  to  all  deeds  of  real  estate  sold  by  either 
husband  or  wife. 

A  deed  to  a  fictitious  person  would  be  absolutely  void. 

THING  GEANTED. — There  can,  of  course,,  be  no  convey- 
ance unless  there  is  something  to  convey.  The  property  must 
be  sufficiently  described  in  the  deed  so  as  to  be  capable  of  being 
easily  identified. 

A ''grantor  should  state  in  the  deed  the  nature  of  his  interest, 
whether  it  be  a  full  ownership,  or  a  half  of  a  certain  property,  or 
all  of  it,  or  as  the  case  may  be. 

THE  CONSIDEKATION  must,  as  in  other  contracts,  be 
either  good  or  valuable.  It  is  not  absolutely  necessary  that  a  con- 
sideration be  expressed  in  the  deed,  although  it  is  proper  and  may 
save  trouble  to  do  so. 

It  is  quite  customary  in  real   estate  conveyances  to  place  a 


216  COMMERCIAL   LAW. 

nominal  sum  in  the  deed  as  consideration,  such  as  $5,  the  real 
consideration  not  being  named,  and  it  is  held  that  where  such 
nominal  sum  is  stated,  the  parties  will  be  allowed  to  prove,  if 
necessary  at  any  future  time,  what  the  real  consideration  was. 

EXECUTION. — By  the  execution  of  a  deed  is  meant  the 
signing  of  the  instrument  by  the  grantor,  and  subsequent  acknowl- 
edgment. 

The  grantor  should  sign  his  name  in  exactly  the  same  manner 
as  it  is  written  in  the  body  of  the  deed. 

His  signature  need  not  be  witnessed,  although  it  is  customary 
to  have  two  witnesses  who  sign  their  names  as  witnesses  to  his  sig- 
nature. 

Where  it  is  impossible  or  inconvenient  for  a  grantor  to  sign 
his  own  name,  he  may  give  a  power  of  attorney  to  an  agent  to 
sign  his  name  for  him,  and  this  power  of  attorney  must  be  exe- 
cuted in  all  respects  with  the  same  formalities  as  the  deed  itself, 
and  must  be  recorded  before  the  deed  is  recorded,  in  order  that 
the  chain  of  title  may  be  in  order  and  unbroken. 

ACKNOWLEDGMENT  is  simply  stating  before  some  prop- 
erly authorized  officer,  by  the  person  who  executes  the  deed,  that 
he  has  executed  the  deed,  and  that  the  signature  is  his  signature, 
or  words  to  that  effect. 

The  officer  then  endorses  upon  the  deed  his  certificate,  to  the 
effect  that  the  person  whose  name  appears  as  a  signature,  acknowl- 
edged to  him  that  he  did  execute  the  deed. 

The  proof  or  acknowledgment  of  a  deed,  or  ottier  like  instru- 
ment, may  be  made  before  a  County  Clerk,  a  County  Recorder,  a 
Court  Commissioner,  a  Notary  Public,  or  a  Justice  of  the  Peace. 

The  object  of  acknowledgment  is  simply  for  the  purpose  of 
proving  the  execution. 

The  deed  is  valid  as  between  the  parties  if  it  is  not  acknowl- 
edged, but  it  can  not  be  recorded  unless  acknowledged,  and  hence 
it  is  not  valid  as  against  third  parties  having  no  notice  of  its  exist- 


DEEDS.  217 

ence.  A  married  woman  may  acknowledge  a  deed  in  the  same 
manner  and  with  the  same  effect  as  if  unmarried. 

DELIVERY  AND  ACCEPTANCE.— These  acts  are  abso- 
lutely essential  to  the  validity  of  a  deed.  As  long  as  it  remains  in 
the  possession  of  the  grantor,  it  is  mere  waste  paper,  and  so  it  is  if 
it  should  be  stolen,  and  by  the  thief  delivered  to  the  grantee. 

The  grantor,  or  his  duly  authorized  agent,  alone  may  deliver 
the  deed.  The  rule  is  the  same  in  regard  to  acceptance.  Only 
the  grantee  or  his  duly  authorized  agent  may  accept  the  deed. 

The  delivery  of  the  deed,  as  in  case  of  delivery  of  any  personal 
property,  may  be  either  actual  or  constructive,  that  is,  it  may  be 
actually  placed  in  the  hands  of  the  grantee,  or  it  may  be  placed 
under  the  control  of  the  grantee,  where  he  can  readily  reduce  it 
to  actual  possession; 

Delivery  should  not  be  made  until  after  acknowledgment,  in 
order  that  the  grantee  may  be  fully  protected  by  being  able  to 
record  the  deed. 

DELIVEEY  IN  ESCBOW.— A  deed  may  be  deposited  by  the 
grantor  with  a  third  person  to  be  delivered  to  the  grantee  on  the 
performance  of  a  condition,  and  when  the  condition  is  performed 
and  the  deed  delivered  by  the  depositary,  it  will  take  effect. 
While  in  the  possession  of  the  third  person  and  subject  to  the  con- 
dition, it  is  called  an  escrow.  The  delivery  to  the  depositary  is 
called  a  deliver}'  in  escrow. 

When  final  delivery  is  made  by  the  depositary  to  the  grantee, 
the  deed  becomes  effective  from  the  time  it  was  delivered  to  the 
depositary. 

EXAMPLE. — A  person  in  expectation  of  death  sometimes 
delivers  a  deed  of  his  property  in  escrow,  to  be  delivered  to  the 
grantee  at  his  death.  When  he  dies,  and  the  depositary  delivers 
the  deed,  the  title  of  the  grantee  becomes  complete  from  the  time 

cf  the  first  delivery. 

The  form  of  a  deed  in  escrow  is  not  necessarily  different  front 


218  COMMERCIAL   LAW. 

that  of  other  deeds,  but  it  is  best  to  accompany  the  deed  by  a 
memorandum  in  writing,  signed  by  the  grantor,  explaining  the 
nature  of  the  deed. 

RECORDING.— The  County  Recorder  of  every  county  is 
required  to  keep  books  called  record  books,  in  which  he  must 
record  or  copy,  word  for  word,  and  figure  for  figure,  every  instru- 
ment properly  deposited  with  him  for  record. 

This  copying  of  instruments  into  these  record  books  is  called 
"recording." 

The  Recorder  keeps  separate  books  for  separate  instruments. 
It  is  his  duty  to  record  documents  in  the  order  in  which  they  were 
received;  so  for  the  purpose  of  determining  which  of  two  docu- 
ments has  been  first  recorded,  an  instrument  is  deemed  to  be 
recorded  as  soon  as  it  is  placed  in  the  Recorder's  office. 

It  is  the  Recorder's  duty  to  indorse  upon  each  instrument 
offered  for  record,  the  exact  time,  day,  hour,  and  minute,  at  which 
the  instrument  was.  offered. 

After  'the  contents  of  the  instrument  are  properly  copied  in 
the  record  book,  the  Recorder  must  further  endorse  on  the  deed 
the  number  of  the  volume,  and  the  page  at  which  the  record  of 
the  deed  may  be  found. 

The  original  deed  may  then  be  returned  to  the  person  who 
desired  its  recordation. 

EFFECT  OF  RECORDING.— As  we  have  seen,  as  between 
parties  thereto,  and  to  any  one  having  knowledge  of  the  transac- 
tion, a  deed  is  valid  after  delivery  is  had,  whether  it  is  recorded  or 
not,  but  as  regards  subsequent  purchasers,  mortgages,  and  persons 
having  judgment  liens  against  the  property,  an  unrecorded  deed 
is  void. 

It  will  be  observed  therefore  that  it  is  of  the  highest  impor- 
tance that  a  purchaser  should  record  his  deed  immediately  upon 
receiving  it. 

If  he  does  this,  the  law  presumes  by  that  act  that  the  world  has 


DEEDS.  219 

notice  of  the  transaction,  and  no  one  can  claim  to  be  ignorant  of 
it;  and  any  judgment  rendered  against  the  grantor  after  such 
recording,  or  any  second  sale  made  by  him  in  fraud  of  the  first  one, 
would  be  absolutely  \oid  as  against  the  rights  of  the  grantee. 

FORMS  OF  DEEDS.— The  common  law  provided  very 
lengthy  and  cumbersome  forms  for  transfer  of  real  property,  and 
had  a  variety  of  deeds  containing  different  warranties  and  con- 
ditions. 

Our  modern  statutes  have  simplified  these  forms  to  a  great 
extent.  The  following  form  is  prescribed  as  sufficient  by  the  Civil 
Code  of  California: — 

"I,  A  B,  grant  to  C  D  all  that  real  property  situated  in  San 
Joaquin  County,  State  of  California,  bounded  and  described  as 
follows:  Being  the  West  One-half  of  Section  Two,  Township  One 
Xorth,  Range  Three  East,  M.  D.  B.  &  M.,  containing  Three  Hun- 
dred and  Twenty  (320)  acres  of  land,  more  or  less. 

"WITNESS  My  hand  this  1st  day  of  July,  1898. 

"A  B." 

It  will  be  noticed  that  the  above  form  omits  the  recital  of  a 
consideration,  as  the  recital  of  a  consideration  is  unnecessary  in 
any  kind  of  a  written  contract.  It  may  be  proved  orally. 

It  also  omits  any  statement  regarding  a  seal,  seals  being  prac- 
tically abolished. 

In  writing  out  deeds,  however,  many  add  a  clause  to  the  effect 
that  the  grantor  will  warrant  and  defend  the  title. 

This  he  is  bound  to  do,  however,  in  any  event,  so  that  there  is 
no  longer  any  distinction  between  warranty  deeds  and  others. 

QUIT-CLAIM  DEED.— This  is  a  form  of  deed  given  for  the 
purpose  of  removing  a  cloud  upon  the  title,  or  making  the  record 
clear. 

-  The  person  giving  the  deed  may  not  even  claim  any  interest, 
Lut  he  may  at  some  time  have  had  some  interest  which  is  not  prop- 
erly released;  hence  for  the  purpose  of  disclaiming  any  title  to  the 


220  COMMERCIAL   LAW. 

property,  he  gives  what  is  called  a  Quit-claim  Deed;  e.  g.,  A  may 
have  owned  a  small  interest  in  certain  land  upon  which  there  was 
a  mortgage.  When  the  mortgage  was  foreclosed,  he  was  not  prop- 
erly served  with  notice  of  the  proceedings.  Ten  years  pass,  and 
while  he  is,  as  a  matter  of  law,  debarred  from  making  any  claim 
to  the  land,  still  the  record  is  not  perfect,  and  in  order  to  release 
his  apparent  claim,  he  will  sign  a  quit-claim  deed. 

The  operative  part  of  a  quit-claim  deed  is  about  as  follows: 
"I,  A  B,  have    remised,  released,    and    quit-claimed,  and    do 
hereby  remise,  release,  and  quit-claim  unto  C  D  all  that  tract  of 
land  described  as  follows:''  etc. 

As  a  matter  of  course,  a  person  who  gives  a  quit-claim  deed 
does  not  give  any  covenants  or  warranties  in  regard  to  the  prop- 
erty. 


TEST  QUESTIONS. 

1.  A  executes  a  power  of  attorney  to  B  to  sell  land.     B  has 

the  power  of  attorney  recorded.  Before  B  sells  the  land, 
a  judgment  is  recorded  against  the  land  and  against  A. 
Would  the  purchaser  take  the  land  subject  to  the  judg- 
ment lien,  or  free  from  it? 

2.  A  executes  a  deed  of  certain  property  to  B.     Afterwards  A 

executes  another  deed  of  the  same  property  to  C.  Illus- 
trate different  circumstances  under  which  either  B  or  C 
might  lawfully  claim  the  ownership  of  the  land. 

3.  A  attempts  to  deliver  a  deed  of  property  to  B  at  a  distance 
by  sending  the  deed  by  mail.     The  deed  is  lost,  and  never 
reaches  B.     Is  the  delivery  complete? 

4.  A  executes  a  deed  of  certain  land  to  B.     There  is  a  house 
on  the  land,  but  it  is  not  mentioned  in  the  deed.     Will  th< 
deed  pass  title  to  the  house?     Discuss  fully. 


CHAPTER  XXXVI. 
MORTGAGES. 

DEFINITION. — As  has  been  before  observed,  under  the  com- 
mon law  system,  mortgages  were  regarded  as  conditional  sales. 
The  actual  title  to  the  property  passed,  with  a  mere  right  of  buy- 
ing back. 

Under  our  modern  system  this  is  not  the  case.  A  mortgage  is 
defined  as  follows:  "Mortgage  is  a  contract  by  which  specific  prop- 
erty is  hypothecated  for  the  performance  of  an  act  without  neces- 
sity of  a  change  of  possession." 

A  mortgage  can  be  created,  renewed,  or  extended  only  by  a 
writing  executed  with  the  formalities  required  in  the  case  of  a 
grant  of  real  property. 

It  will  thus  be  seen  from  the  definition  that  a  mortgage  is  a 
mere  lien  upon  property,  independent  of  possession,  the  evidence 
of  the  lien  being  the  writing. 

The  modern  theory  of  mortgages,  of  course,  does  not  prohibit 
a  person  from  making  a  conditional  sale  of  his  real  estate  should 
he  see  fit. 

PARTIES. — The  parties  to  a  mortgage  are  the  mortgagor,  the 
one  who  executes  the  mortgage,  and  the  mortgagee,  the  one  to 
whom  it  is  executed. 

As  in  other  contracts,  all  competent  persons  may  be  parties  to 
a  mortgage. 

In  case  of  mortgage  of  community  property,  both  husband 
and  wife  must  sign  the  mortgage.  In  case  of  the  separate  prop- 
erty of  either,  only  the  one  whose  property  is  mortgaged  need 

sign. 

(231) 


222  COMMERCIAL    LAW. 

It  is  customary,  however,  for  each  to  sign  all  mortgages  made 
by  either. 

FOKM  OF  MORTGAGE.— As  in  the  case  of  a  grant  of  real 
property,  the  common  law  form  of  mortgage  was  a  very  cumber- 
some one. 

The  following  is  the  modern  form  of  mortgage  of  real  estate: 

THIS  MORTGAGE,  Made  the  1st  day  of  July,  in  the  year 
1898,  by  A  B,  of  Stockton,  San  Joaquin  County,  California,  mort- 
gagor, to  C  D,  of  the  sjarne  place,  mortgagee, 

WITNESSETH:  That  the  mortgagor  mortgages  to  the  mort- 
gagee all  that  certain  property  described  as  being  Section  Four  (4), 
Township  One  (1)  South,  Range  Two  (2)  East,  M.  D.  B.  &  M., 
and  containing  Six  Hundred  and  Forty  (640)  acres  of  land,  as 
security  for  the  payment  to  him  of  Two  Thousand  ($2,000.00) 
Dollars  on  the  1st  day  of  July,  1899,  according  to  the  terms  of  a 
certain  promissory  note,  a  copy  of  which  is  as  follows: — 
$2,000.00 

Stockton,  Cal.,  July  1st,  1898. 

One  year  after  date  I  promise  to  pay  to  C  D,  or  order,  Two 
Thousand  ($2,000.00)  Dollars,  with  interest  thereon  at  the  rate  of 
Ten  (10)  per  cent  per  annum. 

A  B. 

IN  WITNESS  WHEREOF,  I  have  hereunto  set  my  hand  thi? 
1st  day  of  July,  1898. 

Signed  and  delivered  in  the  presence  of 


A  B. 

Besides  the  above,  there  may  be  additional  clauses  to  the  effect 
that  the  mortgagor  will  pay  all  taxes,  except  what  is  assessed  on 
the  mortgage  itself,  and  will  keep  buildings  insured  on  mortgaged 
property,  and  assign  the  policy  of  insurance  to  the  mortgagee. 

WHAT  MAY  BE  MORTGAGED.— Any  interest  in  real  prop- 
erty, which  is  capable  of  being  transferred  by  deed,  may  be  mort- 
gaged. 


MORTGAGES.  223 

An  estate  for  years,  or  for  life,  can  therefore  be  mortgaged  as 
well  as  a  perpetual  estate. 

In  such  cases,  however,  should  the  mortgagee  foreclose,  he  can 
only  get  such  interest  in  the  land  as  his  mortgagor  had,  and  not 
an  absolute  title. 

RENTS  AND  PROFITS.— The  mortgagor,  being  usually  in 
possession  of  the  mortgaged  property,  is  entitled  to  the  rents  and 
profits  from  the  mortgaged  premises  until  the  time  the  mortgage 
is  foreclosed. 

After  the  mortgage  is  foreclosed,  the  mortgagee  is  entitled  to 
the  rents  and  profits  from  the  date  of  the  decree  of  foreclosure, 
and  if  he  is  in  possession,  he  is  entitled  to  the  rents  and  profits  of 
the  land  accruing  after  his  entry  into  possession. 

In  cases  \vhere  the  land  has  been  leased  by  the  mortgagor,  the 
lessee  must  pay  the  rent  to  the  mortgagee  from  the  time  he  becomes 
entitled  to  possession  of  the  land. 

ASSIGNMENT  OF  THE  MORTGAGE.— An  assignment  of 
a  mortgage  may  be  made  either  by  writing  on  the  back  of  the 
mortgage  itself  a  statement  to  the  effect  that  the  mortgage  is 
assigned  and  transferred  from  the  holder  to  another,  together 
with  the  delivery  of  the  instrument  to  that  other,  and  any  instru- 
ment of  indebtedness  which  there  may  be,  such  as  a  promissory 
note;  or  a  formal  written  assignment  may  be  made  by  a  separate 
instrument,  and  acknowledged  and  recorded  in  like  manner  as  the 
original  mortgage. 

The  following  is  the  ordinary  form  of  assignment: — 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  I,  A  B, 
of  Stockton,  California,  have  granted,  bargained,  sold,  and 
assigned,  and  by  these  presents  do  grant,  bargain,  sell,  and  assign 
unto  C  D,  of  the  same  place,  a  certain  mortgage  bearing  date 
the  1st  day  of  July,  1897,  executed  by  E  F  to  said  A  B  to  secure 
the  payment  of  the  sum  of  Eight  Hundred  ($800.00)  Dollars, 
together  with  a  promissory  note  therein  described,  and  all  moneys 


224  COMMERCIAL   LAW. 

due,  or  to  become  due  thereon  which  said  mortgage  was  recorded 
in  the  office  of  the  County  Kecorder  of  the  County  of  Butte,  State 
of  California,  in  Book  10  of  Mortgages,  page  400,  on  the  5th  day 
of  July,  1897. 

IN  WITNESS  WHEREOF,  I  have  hereunto  set  my  hand  the 
20th  day  of  July,  1898. 

A.  B. 

RELEASE  OF  MORTGAGE.— A  recorded  mortgage  may  be 
discharged  by  an  entry  on  the  margin  of  the  record  thereof,  signed 
by  the  mortgagee,  or  his  personal  representative,  or  assignee, 
acknowledging  the  satisfaction  of  the  mortgage,  in  the  presence 
of  the  Kecorder,  who  must  certify  to  the  acknowledgment  in  form 
substantially  as  follows: 

"Signed  and  acknowledged  before  me  this  1st  day  of  Septem- 
ber, in  the  year  1898. 

"A  B,  County  Kecorder." 

Or  where  it  is  inconvenient  for  a  mortgagee  personally  to 
visit  the  Recorder's  office,  he  may  execute  a  release  of  the  mort- 
gage by  a  separate  instrument,  which  must  be  acknowledged  and 
recorded  in  like  manner  as  the  mortgage. 

The  release  of  mortgage  thus  made  may  be  in  the  following 
form: 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  that  cer- 
tain mortgage  made  by  C  D,  of  San  Joaquin  County,  California, 
the  party  of  the  first  part,  to  A  B,  of  the  same  place,  the  party  of 
the  second  part,  and  recorded  in  the  office  of  the  County  Recorder 
of  the  County  of  Santa  Clara,  State  of  California,  in  Volume  40 
of  Mortgages,  at  page  351,  on  the  20th  day  of  September,  1897, 
together  with  the  debt  thereby  secured,  is  fully  paid,  satisfied, 
and  discharged. 

IN  WITNESS  WHEREOF,  I  have  hereunto  set  my  hand  me 
1st  day  of  October,  1898-  A.  B. 

A  partial  release  of  mortgage  may  be  made;  that  is,  the  release 
may  be  made  so  a?  to  specify  that  a  certain  portion  of  the  land 
described  in  the  mortgage  is  released. 


MORTGAGES.  225 

This  is  frequently  done  when  a  portion  of  the  mortgage  debt 
has  been  paid. 

ACKNOWLEDGING  AND  RECORDING.— These  subjects 
have  been  fully  discussed  under  the  chapter  on  deeds. 

The  execution  of  a  mortgage  is  acknowledged  in  the  same 
manner,  and  the  mortgage  is  recorded  in  the  same  manner  as  in 
the  case  of  a  deed. 

The  effect  of  recording  a  mortgage  is  to  give  notice  to  the 
world  that  there  is  a  lien  to  the  extent  of  the  mortgage  debt,  upon 
the  property  mortgaged. 

When  an  assignment  is  recorded,  its  effect  is  to  protect  the 
purchaser  of  the  mortgage  from  the  possibility  of  the  mortgagee's 
making  a  second  sale  of  the  mortgage  debt. 

The  effect  of  recording  a  release  of  mortgage  is  to  give  notice 
that  the  land  is  freed  from  the  lien  of  the  mortgage. 

PRIORITY  OF  MORTGAGES.— As  has  been  intimated,  a 
mortgage  which  is  first  duly  acknowledged  and  recorded  lias 
priority  over  any  subsequent  liens  or  incumbrances. 

It  is  not  uncommon  for  two  mortgages  to  be  given  with  the 
same  piece  of  property  as  security,  and  even  a  greater  number 
may  be  given  upon  the  same  property. 

In  such  cases  the  mortgage  which  is  recorded  first,  must  be 
paid  first,  and  when  foreclosure  is  had,  if  there  is  any  surplus 
after  paying  the  first  mortgagee,  the  next  in  rank  as  regards  time, 
takes  his  turn  at  the  surplus,  and  so  on  in  the  order  of  time,  if 
there  is  any  surplus  remaining,  until  the  last  mortgage  is  satisfied. 

It  makes  no  difference  what  the  actual  date  of  the  several 
mortgages  may  be.  The  record  books  are  conclusive,  and  a  pur- 
chaser or  mortgagee  will  be  protected  in  relying  upon  them. 

In  general,  then,  the  rule  is  that  whatever  is  of  record  first 
has  precedence.     There  is  an  exception,  however,  in  the  matter 
of  taxes.     Legally  levied  taxes,  as  a  matter  of  public  policy,  must 
be  paid  in  preference  to  other  liens. 
15 


226  COMMERCIAL   LAW. 

SALE  OF  MORTGAGED  PROPERTY.— Property  which  is 
mortgaged  is  nevertheless  the  subject  of  conveyance  by  deed. 

The  conveyance,  however,  does  not  destroy  the  lien  of  the 
mortgage.  The  mortgage  lien  follows  the  property  into  whoseso- 
ever hands  the  property  may  pass  as  owner,  and  before  he  can  have 
an  absolute  title,  he  must  pay  off  the  mortgage. 

It  is  customary,  however,  in  cases  of  sale  of  mortgaged  prop- 
erty, for  the  purchaser  either  to  pay  off  the  mortgage,  or  execute 
a  new  one  binding  himself  to  pay  the  debt. 

Where  no  such  arrangement  is  made,  the  parties  usually  recite 
in  the  mortgage  that  "this  conveyance  is  made  subject  to  that 
certain  mortgage  bearing  date,"  etc.  (Describing  the  mortgage.) 

In  this  manner  the  records  are  made  to  show  the  exact  con- 
dition of  the  land  as  regards  title. 

FORECLOSURE. — In  case  the  mortgage  debt  is  not  paid 
when  it  is  due,  the  holder  of  the  mortgage  may  commence  an 
action  in  court  for  the  enforcement  of  his  lien  against  the  property, 
and  may  obtain  a  judgment  decreeing  the  foreclosure  of  the  mort- 
gage, and  sale  of  the  mortgaged  property. 

A  commissioner  is  appointed  by  the  court  to  sell  the  property, 
which  he  must  do  at  public  auction,  to  the  highest  bidder.  The 
proceeds  of  the  sale  are  first  applied  to  the  expenses  thereof  and 
costs  of  foreclosure,  and  then  to  the  satisfaction  of  the  mortgage 
debt. 

If  there  be  any  surplus  remaining,  it  must  be  paid  to  the  mort- 
gagor. If  there  be  a  deficiency,  an  additional  judgment,  called  a 
deficiency  judgment,  is  entered  against  the  mortgagor  personally 
for  the  amount  of  the  deficiency,  and  any  other  property  which 
he  has  (not  exempt)  may  be  sold  to  satisfy  the  deficiency. 

EQUITY. OF  REDEMPTION.— A  judgment  debtor,  or  any 
one,  as  redemptioner,  may  redeem  the  property  from  the  purchaser 
at  the  foreclosure  sale,  within  twelve  months  after  the  sale,  upon 
paying  to  the  purchaser  the  amount  of  the  purchase  price,  with 


MORTGAGES.  227 

^ 

interest  at  the  rate  of  one  per  cent  per  month  in  addition  thereto 
up  to  the  time  of  redemption,  together  with  any  assessments  or 
taxes  which  the  purchaser  may  have  paid  since  his  purchase,  and 
interest  on  such  payments,  if  any. 

After  the  property  has  been  once  redeemed,  it  may  be  again 
redeemed  within  sixty  days,  by  a  third  party,  upon  his  paying  sim- 
ilar interest  and  costs;  and  within  sixty  days  after  such  redemption 
it  may  be  further  redeemed,  and  so  on  indefinitely  so  long  as  one 
whole  year  does  not  elapse  from  the  time  of  the  first  redemption, 
or  sixty  days  from  the  time  of  any  preceding  redemption. 

In  case  such  times  do  elapse,  however,  without  redemption,  the 
purchaser  is  entitled  to  an  absolute  conveyance  from  the  commis- 
sioner, called  a  commissioner's  deed. 

If  the  debtor  redeem  the  property  himself,  the  effect  of  the 
sale  is  terminated,  and  he  is  restored  to  his  estate,  and  the  person 
to  whom  the  payment  is  made,  must  execute  and  deliver  to  hiir 
a  certificate  of  redemption,  which  must  be  acknowledged  an<f 
recorded. 


TEST  QUESTIONS. 

1.  A  has  a  first  and    second    mortgage  on  his    property;    he 
wishes  to  sell  the  property.     May  he  do  so? 

2.  A  deeds  property  to  B  for  $1,000  cash,  subject  to  a  mort- 
gage of  $2,000.      At  foreclosure  sale  the  property  brought 
$2,000.     Does  B  lose  his  $1,000  and  the  land  also? 

3.  A  rents  a  house  and  lot  from  month  to  month.     During  his 
tenancy  a  mortgage  on  the  property  is  foreclosed.     He  is 
not  notified  of  any  change  of  possession,  and  continues  to 
pay  to  the  original  landlord  for  some  time  after  the  fore- 
closure.    What  remedy  has  the  new  owner  for  the  loss  of 
the  rents? 


228  COMMERCIAL    LAW. 

4.  A  mortgage  is  given  to  secure  the  payment  of  a  promissory 
note;  the  note  is  fully  paid.      Can  the  mortgage   lien  be 
then  enforced? 

5.  A   note   is   given,  secured  by  mortgage;   the   mortgage  is 
released.    Does  this  release  cancel  the  debt? 


CHAPTER  XXXVII. 
LANDLOKD  AND  TENANT. 

EXPLANATION.— Under  the  law  of  real  property  the  land- 
lord is  the  owner  or  one  entitled  to  the  possession  of  land,  and 
the  tenant  is  one  having  an  estate  for  years  in  the  land. 

The  term  "estate  for  years/'  however,  is  rarely  used  in  common 
parlance. 

We  speak  of  the  tenant  as  a  rentor  or  lessee  of  real  property. 

A  lease  is  the  contract  entered  into  hetween  the  landlord  and 
the  tenant,  and  which  prescribes  the  conditions  of  the  tenancy. 

Under  the  statute  of  frauds,  a  lease  for  a  longer  period  than  one 
year  must  be  in  writing,  otherwise  it  can  be  avoided  at  the  option 
of  either  party. 

A  written  lease  may  be  acknowledged  and  recorded  in  like 
manner  as  a  deed  or  a  mortgage. 

It  is  customary  in  cases  of  written  leases  to  have  them  exe- 
cuted in  duplicate  that  each  party  may  have  a  copy. 

A  lease  should  be  signed  by  both  parties  to  the  agreement. 
As  we  have  stated  before,  under  the  head  of  statute  of  limitations, 
a  lease  of  farming  lands  is  only  valid  for  a  period  of  15  years,  and 
a  lease  of  city  lots  for  a  period  of  99  years. 

The  reason  for  these  restrictions  is  that  it  is  a  matter  of  public 
convenience  and  policy  that  the  ownership  and  possession  of  prop- 
erty should  pass  from  hand  to  hand  at  reasonable  intervals  of 
time,  and  the  above-named  periods  have  been  fixed  arbitrarily  as 
the  periods  proper  in  each  case  as  specified.  /-^ 

(229) 


230  COMMERCIAL   LAW. 

TERM,  DEFINED.— The  term  is  the  time  fixed  by  the  coil- 
tract  for  the  running  of  the  lease,  having  a  precise  beginning  and 
ending,  but  the  period  need  not  be  definitely  fixed  by  the  contract 
if  it  is  specified  in  such  a  manner  as  can  be  made  certain;  as  "dur- 
ing A's  minority."  Where  farming  land  has  been  rented  from 
year  to  year,  and  the  lessee  remains  in  possession  thereof  after  the 
expiration  of  the  hiring,  and  the  lessor  accepts  rent  from  him,  the 
contract  is  presumed  to  be  renewed  on  the  same  terms  and  for  the 
same  time,  not  to  exceed  a  month,  if  the  rental  is  payable  monthly, 
nor  in  any  case  not  to  exceed  one  year. 

In  the  hiring  of  lodging  or  dwelling  houses  for  an  unspecified 
term,  it  is  presumed  to  be  made  for  such  a  length  of  time  as  the 
party  adopts  lor  the  estimation  of  the  rent. 

Thus,  a  hiring  at  a  monthly  rate  is  presumed  to  be  for  one 
month. 

THE  REiNT. — When  there  is  no  usage  or  contract  to  the  con- 
trary, rents  are  payable  at  the  termination  of  the  holding,  when 
it  does  not  exceed  one  year. 

If  the  holding  is  by  the  day,  week,  month,  quarter,  or  year, 
rent  is  payable  at  the  termination  of  the  respective  periods,  as  it 
successively  becomes  due. 

It  frequently  is  specified  by  the  contract,  however,  that  rent 
shall  be  payable  in  advance,  and  in  such  case  it  must  be  paid  in 
advance. 

In  case  no  amoui_t  is  specified  in  the  contract  a  reasonable 
amount  is  presumed. 

LANDLORD'S  RIGHTS  AND  DUTIES.— The  lessor  of  a 
building  intended  for  occupation  of  human  beings  must,  in  the 
absence  of  an  agreement  to  the  contrary,  put  it  into  a  condition 
fit  for  such  c-ccupation,  and  repair  all  subsequent  dilapidations 
thereof,  which  render  it  untenantable,  except  such  injuries  to  the 
premises  as  may  have  resulted  from  the  ordinary  negligence  of  the 
lessee. 


LANDLORD  AND  TENAN1.  231 

The  landlord  has  no  right  to  interfere  with  ilie  tenant  in  any 
way  during  his  tenancy,  unless  the  tenant  is  violating  the  provi- 
sions of  the  lease,  or  is  committing  waste  upon  the  property,  but 
the  right  is  often  reserved  in  the  lease,  by  the  landlord,  that  he 
shall  be  allowed  to  enter  the  premises  at  any  time  for  the  purpose 
of  viewing  them  to  satisfy  himself  that  the  conditions  of  the  lease 
are  being  properly  carried  out  by  the  tenant. 

A  landlord  may,  during  the  continuance  of  the  lease,  sell  or 
mortgage  the  property,  but  the  purchaser  in  case  of  sale  takes  the 
property  subject  to  the  tenant's  rights,  and  can  not  arbitrarily 
remove  him  in  violation  of  the  lease. 

TENANT'S  EIGHTS.— A  tenant  is  entitled  to  the  full  use 
of  land  for  the  purpose  for  which  it  was  leased.  He  is  bound  not 
to  commit  waste,  or  do  any  act  which  will  permanently  injure  the 
property. 

He  may  cut  wood  for  his  own  use  while  a  tenant.  At  the 
expiration  of  his  lease  he  must  deliver  up  the  property. 

In  case,  however,  there  are  growing  crops,  planted  by  him, 
which  by  reason  of  an  unusually  late  season  or  other  circumstance 
beyond  human  control,  were  not  fit  to  remove  at  the  expiration  of 
the  lease,  he  has  the  right  of  reentry  at  proper  season  for  the  pur- 
pose of  removing  such  crops. 

As  regards  repairs  in  lease  of  a  dwelling  house,  if  within  a 
reasonable  time  after  notice  to  the  lessor  of  dilapidations  which 
he  ought  to  repair,  he  neglects  to  do  so,  the  tenant  may  repair  the 
same  himself,  where  the  cost  of  such  repairs  does  not  exceed  one 
month's  rent  of  the  premises,  and  he  may  deduct  such  cost  from 
the  rent;  or  he  may  vacate  the  premises  and  be  relieved  from 
further  payment  of  rent. 

ASSIGNMENT  AND  SUBLETTING.— Unless  the  contract 
of  leasing  otherwise  provides,  a  tenant  has  a  right  to  assign  his 
leasehold  interest  in  the  property  to  the  full  extent  of  his  own 
term. 

Such  assignment  does  not  relieve  the  tenant  from  lability 


232  COMMERCIAL   LAW. 

under  the  lease,  unless  assented  to  by  the  landlord,  and  the 
assignee  accepted  as  a  new  tenant. 

A  tenant  is  said  to  "sublet"  when  he  still  holds  possession  of 
the  premises,  but  rents  to  others  a  portion  of  them.  By  so  doing 
he  does  not  release  himself  from  any  part  of  his  obligations  under 
the  lease. 

In  legal  effect  he  becomes  landlord  of  the  part  sublet,  and  the 
person  who  rents  from  him,  his  tenant. 

FIXTURES  are  anything  afllxed  to  leased  premises  for  pur- 
poses of  trade,  manufacture,  ornament,  or  domestic  use. 

Formerly  a  great  deal  of  discussion  was  had  as  to  what  were 
fixtures,  it  being  held  that  anything  firmly  affixed  to  the  realty 
became  a  part  thereof,  and  could  not  be  removed. 

The  law  is  now  settled  under  the  definition  above  given.  Any 
article  belonging  to  the  classes  enumerated  may  be  removed  from 
the  premises  at  any  time  during  the  continuance  of  the  tenant's 
term  if  the  removal  can  be  effected  without  injury  to  the  premises, 
unless  the  thing  has  by  the  manner  in  which  it  is  affixed  become 
an  integral  part  of  the  premises;  though  even  a  partition  placed  in 
a  building  may  be  removed,  if  its  removal  will  not  weaken  the 
walls  or  leave  them  in  a  damaged  condition. 

Such  articles  as  counters,  show  cases,  shelving,  and  window 
shades  are  common  examples  of  what  constitutes  fixtures. 

EVICTIOX. — Where  property  is  leased  for  a  stated  time,  it 
is  the  duty  of  the  tenant  to  vacate  at  the  expiration  of  that  time 
without  notice. 

Where,  however,  it  is  rented  for  an  indefinite  time  from  year  to 
year,  six  months'  notice  is  required  to  terminate  the  holding;  and 
where  it  is  rented  for  an  indefinite  time  from  month  to  month,  a 
notice  of  not  less  than  one  month  must  be  given,  for  such  termina- 
tion. 

So  where  the  renting  is  by  the  week,  a  week's  notice  must  be 
given. 


LANDLORD  AND  TENANT.  233 

When  these  notices  have  been  properly  given,  or  when  by  the 
terms  of  the  lease  the  tenant  should  deliver  possession,  and  also 
where  he  has  violated  the  conditions  of  his  lease  in  not  paying 
rent,  the  landlord  may,  in  a  summary  manner,  proceed  to  eject 
him. 

This  is  done  by  giving  a  three  days'  notice,  called  a  "Notice  to 
Quit."  This  notice  must  describe  the  premises,  state  the  amount 
of  rent  due,  and  demand  possession  within  three  days. 

If  such  notice  is  not  complied  with,  the  landlord  may  bring 
suit,  obtain  judgment,  and  through  the  officers  of  the  law,  take 
forcible  possession  of  the  premises,  eject  the  tenant,  and  remove 
his  furniture  and  belongings  from  the  premises. 

It  is  no  defense  against  eviction  for  the  tenant  to  plead  that 
the  person  from  whom  he  leased  is  not  the  owner  of  the  property, 
or  that  his  title  is  defective. 

Having  recognized  the  landlord  as  a  landlord,  for  the  purpose 
of  securing  possession  of  the  premises,  he  can  not  deny  the  land- 
lord's authority,  for  the  purpose  of  avoiding  payment  of  his  rent. 


TEST  QUESTIONS. 

1.  Discuss  the  obligation  of  a  tenant  to  repair  a  barn  which 
has  been  blown  down  by  a  strong  wind. 

2.  A  tenant  cuts  a  doorway  through  a  partition  and  hangs  a 
door  therein.     May  he  take  the  door  with  him  when  leav- 
ing the  premises? 

3.  A  tenant  is  in  possession   for   an   indefinite    period.      He 

plants  crops,  but  before  they  are  matured,  the  owner  sells 
the  land.  The  new  owner  evicts  the  tenant.  Who  may 
harvest  the  crop? 

4.  In  a  lease  of  a  house  and  lot  nothing  is  said  regarding  the 
time  of  payment.     What  is  the  presumption  as  to  payment, 
as  to  whether  monthly,  yearly,  or  in  advance,  or  otherwise? 


MAXIMS  OF  JURISPRUDENCE. 


One  must  not  change  his  purpose  to  the  injury  of  another. 

Any  one  may  waive  the  advantage  of  a  law  intended  solely  for 
his  benefit.  But  a  law  establi.shed  for  a  public  reason  can  not  be 
contravened  by  a  private  agreement. 

One  must  so  use  his  own  rights  as  not  to  infringe  upon  the  rights 
of  another. 

He  who  consents  to  an  act  is  not  wronged  by  it. 

Acquiescence  in  error  takes  away  the  right  of  objecting  to  it. 

No  one  can  take  advantage  of  his  own  wrong. 

He  who  has  £raud\ilently  dispossessed  himself  of  a  thing  may  be 
treated  as  if  he  still  had  possession. 

He  who  can  and  does  not  forbid  that  which  is  done  on  his  behalf 
is  deemed  1o  have  bidden  it. 

No  one  should  suffer  by  the  act  of  another. 

He  who  takes  the  benefit  must  bear  the  burden. 

One  who  grants  a  thing  is  presumed  to  grant  also  whatever  is 
essential  to  its  use. 

For  every  wrong  there  is  a  remedy. 

Between  those  who  are  equally  in  the  right,  or  equally  in  the 
wrong,  the  law  does  not  interpose. 

Between  rights  otherwise  equal,  the  earliest  is  preferred. 

No  man  is  responsible  for  that  which  no  man  can  control. 

The  law  helps  the  vigilant,  before  those  who  sleep  on  their  rights. 

The  law  respects  form  less  than  substance. 

That  which  ought  to  have  been  done  is  to  be  regarded  as  done,  in 
favor  of  him  to  whom,  and  against  him  from  whom,  performance 
is  due. 

That  which  does  not  appear  to  exist  is  to  be  regarded  as  if  it  did 
not  exist. 

The  law  never  requires  impossibilities. 

The  law  neither  does  nor  requires  idle  acts. 

The  law  disregards  trifles. 

Particular  expressions  qualify  those  which  are  general. 

(234) 


MAXIMS   OF  JURISPRUDENCE.  235 

The  greater  contains  the  less. 

Superfluity  does  not  vitiate. 

That  is  certain  which  can  be  made  certain. 

Time  does  not  confirm  a  void  act. 

An  interpretation  \vhich  gives  effect  is  preferred  to  one  which 
makes  void. 

Interpretation  must  be  reasonable. 

Where  one  of  two  innocent  persons  must  suffer  by  the  act  of  a 
third,  he  by  whose  negligence  it  happened,  must  be  the  sufferer. 


SAINT  ANTHONY'S  SEMINARY 
KAWTA    BARBAWA.    CALtP. 


GLOSSARY. 


ABANDONMENT. — In  Marine  Insurance,  the  giving  up  by  the  owner 

to  the  insurer  of  partly  destroyed  property. 
ACCEPTANCE. — The  act  of  a  drawee  in  writing  the  word  "accepted," 

or  other  words,  across  the  face  of  a  Bill  of  Exchange,  by  which 

he  agrees  to  pay  the  bill. 
ACCEPTOR. — One  who  accepts  by  writing  on  the  face  of  a  bill  his 

acceptance. 

ACCOMMODATION  PAPER.— Negotiable  paper,  for  which  no  consid- 
eration passes  between   the  original  parties;    being  given   as  an 

accommodation  without  intention  of  enforcing  payment. 
ACCORD. — An  agreement  to  accept  something  less  or  different  from 

what  is  named  in  a  contract. 
ACKNOWLEDGMENT.— The  stating  before  a  competent  officer  that 

one's  own  signature  to  a  document  is  genuine. 
ACTION  is  a  proceeding  in  a  Court,  by  which  one  party  prosecutes 

another  for  the  enforcement  of  his  rights,  or  the  redress  or  pre- 
vention of  a  wrong. 
ACT  OF  GOD. — Damage  which  is  caused  by  irresistible  cause,  such  as 

lightning,  or  earthquake,  is  said  to  be  caused  by  "Act  of  God." 
AFFREIGHTMENT.— The  hiring  of  a  ship  for  the  transportation  of 

goods. 
AGENCY. — Relation  existing  between  two  parties  wherebjr  one  acts 

for  the  other  in  dealing  with  a  third  person. 

AGENT. — A  person  who  is  employed  to  transact  business  for  another. 
ANTE-DATED.— Dated  at  a  time  earlier  than  the  actual  date. 
APPRAISEMENT. — Valuation  of  property  by  persons  appointed  for 

that  purpose. 
APPURTENANCES.— In   the  law  of  real   property,   articles   such   as 

door  keys,  belonging  to  the  realty. 
ARBITRATION. — Settling  a  dispute  by  persons  agreed  upon  for  that 

purpose. 
ARTICLES  OF  CO-PARTNERSHIP.— The  written  contract  by  which 

a  partnership  is  formed. 
(236) 


GLOSSARY.  237 

ASSETS. — Property  not  exempt  from  execution,  which  may  be  applied 

to  the  payment  of  debts. 
ASSIGNEE. — A  person  who  takes  charge  of  a  bankrupt  estate,   for 

the  purpose  of  dividing  it  amongst  his  creditors;  also  any  one  to 

whom  an  instrument  is  assigned. 
ASSIGNMENT. — The   act   of   transferring   a  bankrupt's   property   to 

an  assignee;  or  the  transferring  of  any  property  from  one  person 

to  another. 

ASSIGNOR. — One  who  assigns  property. 
AWARD. — The   decision  of  arbitrators. 

BAILMENT. — The  delivery  of  personal  property  in  trust  for  a  speci- 
fied purpose,  to  be  returned  after  the  purpose  is  accomplished. 
BANKRUPT. — 1.  One  who  is  unable  to  pay  his  debts  in  the  ordinary 

manner. 

2.  A  person  who  is  declared  by  a  competent  Court  to  be  unable 

to  pay  his  debts. 
BARRATRY. — Any  breach  of  duty  committed  by  a  master  of  a  vessel, 

or  his  officers,  by  which  a  ship  or  cargo  is  injured. 
BARTER. — An    exchange    of    goods,    distinguished    from    sale,    where 

goods  are  exchanged  for  money. 
BENEFICIARY. — The  person  to  whom  a  life  insurance  policy  is  made 

payable. 
BILL  OP'  EXCHANGE. — A  negotiable  instrument  ordering  the  person 

addressed  to  pay  a  third  person  a  definite  sum  of  money,   at  a 

specified  time. 
BILL  OF  LADING. — A  written  contract  \>y  a  carrier,  evidencing  the 

transaction  of  sending  goods  by  him. 
BLANK   ENDORSEMENT.— A  writing  on   the   back   of   a   negotiable 

instrument  of  the  endorser's  name  only. 
BOND. — 1.  A  written  instrument  binding  the   maker  to  pay  money, 

as  penalty  for  breach  of  an  undertaking. 

2.  A  very  formal  negotiable  instrument,   issued  by   a  munici- 
pality. 
BOTTOMRY   BOND.— An   instrument   in   the   nature   of   a   mortgage, 

given  on  a  vessel  to  seciire  a  loan. 
BY-BIDDER. — In   auction   sales,   a   person   employed   to   bid   to   raise 

the  price  of  articles  to  be  sold,  without  any  intention  of  buying. 
BY-LAWS. — The   rules  made  by   a   corporation   for  the   management 

of  its  prhate  affairs. 
CAPITAL  STOCK.— Whatever  is  contributed  to  a  corporation   a.s  it* 

working  property. 


238  COMMERCIAL   LAW. 

CAVEAT  EMPTOJl,  meaning,  "Let  the  purchaser  beware,"  applies  to 
the  case  of  a  purchaser  who  has  an  opportunity  to  inspect  an 
article  before  buying  it. 

CERTIFICATE  OF  DEPOSIT— A  certificate  issued  by  a  bank,  stat- 
ing that  the  holder  has  certain  money  deposited  in  the  bank, 
payable  to  his  order. 

CERTIFICATE  OF  STOCK.— A  paper  issued  by  a  corporation  as  evi- 
dence of  the  number  of  shares  of  the  capital  stock  which  a 
holder  has. 

CERTIFICATION.— The  signature  of  a  banker  written  across  the 
face  of  a  check,  with  or  without  other  words,  to  indicate  that 
the  check  is  good,  and  will  be  paid  by  the  bank. 

CHARTER.— To  hire  a  vessel,  or  part  of  it. 

CHARTER  PARTY.— The  written  contract  by  which  the  vessel  is 
hired. 

CHATTEL  MORTGAGE.— A  mortgage  of  personal  property,  by  which 
it  is  held  as  security  for  the  performance  of  some  act. 

CHECK. — A  written  order  drawn  upon  a  bank,  or  a  banker,  for  the 
payment  of  money. 

CIVIL  CODE. — A  body  of  laws,  enacted  by  the  Legislature,  relating 
to  civil  contracts. 

COMMON  CARRIER. — One  who  undertakes  for  hire,  and  as  a  busi- 
ness, to  carry  passengers  or  freight. 

COMMON  LAW. — The  ancient  law   of  England,   originating  in  mere 
customs. 

CONDITION  PRECEDENT.— An  act,  which  must  be  performed  by 
one  party  to  a  contract,  before  the  other  party  need  do  any  act. 

COMPLAINT. — The  written  statement  of  a  plaintiff  in  an  action. 

CONSIDERATION. — The  inducement  for  entering  into  contracts. 

CONSIGNOR. — A  person  who  ships  goods. 

CONSIGNEE. — One  to  whom  goods  are  sliipped. 

CONVEYANCE. — 1.  Carrying  anything  by  land  or  water. 

2.  A  written  instrument  by  which  an  estate  in  real  property 
is  transferred  from  one  person  to  another. 

CO-PARTNERSHIP. — An  association  of  persons  for  the  transaction 
of  business,  and  division  of  losses  and  profits. 

CORPORATION.— An  artificial  being  having  powers  and  duties  of 
a  natural  person. 

COUNTER  CLAIM. — A  claim  set  tip  as  a  defense  to  a  suit,  by  which 
the  defendant  claims  something  from  the  plaintiff. 


GLOSSARY.  239 

COVENANT.  —  Any  agreement  contained  in  a  contract  in  regard  to 

real  property. 
DAMAGES.  —  Compensation    awarded    to  one    person  to  be    paid  by 

another  for  injuries  inflicted. 
DECEDENT.—  A  dead  person. 

DECREE.  —  A  judgment  rendered  by  a  court  of  equity. 
DEFENSE.  —  A  legal  reason  given  by  a  defendant,  tending  to  show 

that  there  is  no  cause  of  action  against  him. 
DEFENDANT.—  The  party  sued  in  an  action. 
DEMAND.  —  The  act  of  asking  for  payment. 
DEPOSIT.  —  A  kind  of  bailment  where  goods  are  merely  left  for  safe 

keeping. 

DEPONENT.—  One  who  makes  an  affidavit. 
DEVIATION.  —  In  marine  insurance,    a  departure   from  the   regular 

course  of  the  voyage  insured  for,  without  necessity. 
DEVISE.—  A  gift  of  real  estate  by  will. 
DIES    NON.  —  (No    days.)      Holidays,    or    days    when    Courts    do    not 

transact  business. 

DISABILITY.  —  Legal   incapacity   to   contract. 

DISAFFIRMANCE.—  The  act  of  making  void  a  voidable  contract. 
DISHONOR.  —  The  refusal  of  the  debtor  in  a  negotiable  instrument 

to  pay  it  when  due. 
DIVIDEND.  —  1.  The   profits  of  a   corporation  distributed  among  its 

stockholders. 

2.  The  proceeds  of  a  bankrupt's  estate  divided  among  credits 

ors. 

DRAFT.—  An  inland  bill  of  exchange. 
DRAWEE.  —  One  who  is  ordered  to  pay  a  sum  of  money  named  in  a 

bill  of  exchange. 

DRAWER.  —  The  person  who  makes,  or  draws,  the  bill  of  exchange. 
DURESS.  —  Unlawful  restraint  of  person  or  property. 
EASEMENT.  —  A  privilege  of  using  another's  land,  such  as  right  of 


EMBLEMENTS.  —  Growing  crops  of  any  kind. 

EMINENT  DOMAIN.—  The  right  of  the  government  to  take  private 

property  for  public  use. 
ENDORSE.  —  To    put  one's  name  on  the  back  of    an  instrument  in 

writing. 

ENDORSEE.  —  The  person  in  whose  favor  the  endorsement  is  made. 
ENDORSER.—  The  one  who  makes  the  endorsement. 


240  COMMERCIAL    LAW. 

EQUITY  OF  REDEMPTION.— The  right  of  a  mortgagor,  or  others, 

to  redeem  mortgaged  property  after  foreclosure. 
ESCHEAT. — The  reverting  of  land  to  the  state  at  the  death  of  the 

owner  without  heirs  or  will. 
ESCROW. — Any  written  instrument  delivered  to  a  third  party  to  be 

held  and  delivered  at  some  future  time  to  the  grantee  or  other 

person  designated. 

ESTATE. — The  interest  of  a  person  in  real  property. 
EXECUTION. — 1.  A  writ  issued  to  a  peace  officer  commanding  him 

to  enforce  a  judgment. 

2.  The  signing  of  any  legal  document  so  as  to  make  it  valid, 

particularly  of  a  deed  or  mortgage. 

FEE  SIMPLE. — An  absolute  or  perpetual  estate  in  lands. 
FIRM. — The  members  of  a  partnership  collectively. 
FORECLOSURE. — The  proceedings  in  a  suit  to  enforce  the  lien  of  a 

mortgage,  together  with  the  sale  of  the  mortgaged  premises. 
FRANCHISE. — A  special  privilege  conferred  by  the  government;   as, 

the  right  to  build  a  railroad  through  city  streets. 
FRAUD. — Deceit  practised  upon  another  to  his  injury. 
FREEHOLD. — Any  estate  of  inheritance,  or  a  life  estate. 
FREIGHT. — 1.  The  price  paid  a  carrier  for  shipping  goods. 

2.  The  goods  themselves  while  in  transit. 
GENERAL   AVERAGE. — A   contribution  by   owners   of   a   vessel   and 

cargo  on  account  of  loss  sustained  l>y  a  person  whose  property 

has  been  sacrificed  for  the  common  safety. 
GOOD  WILL. — The  expectation  of  continued   public   patronage   of  a 

business  house. 

GUARANTOR. — One  who  agrees  to  be  responsible   for  the  perform- 
ance of  some  act  by  another. 
GUARDIAN. — One   appointed   to   have    the   care    and    custody    of   the 

person  or  property  of  an  incompetent  person. 
GUEST. — A  person  who  is  received  and  furnished   entertainment  at 

an  inn. 

IDIOT. — One  without  reasoning  powers  from  birth. 
INCAPACITY. — Lack  of  legal  qualifications  to  do  business. 
INCORPORATE.— To  form  a  corporation. 
INFANT. — A   person   under  age;    in  case   of   males,   under   21   years; 

females,  under  18  years. 
INJUNCTION. — A  writ  or  order  of  a  Court  or  Judge  commanding  a 

certain  person  to  refrain  from  doing  some  act. 
INSANE  PERSON. — One  who  has  lost  his  reason. 


GLOSSARY.  241 

INSOLVENT. — A  person  unable  to  pay  his  debts  in  the  usual  course 
of  business. 

INSURABLE  INTEREST.— That  interest  which  a  person  has  in 
property,  or  another's  life,  which,  if  the  property  is  destroyed, 
or  the  person  dies,  would  result  in  pecuniary  loss  to  him. 

INSURANCE. — A  contract  by  which  a  person,  called  the  insuvc., 
agrees  to  indemnify  another,  called  the  insured,  against  loss 
from  specified  causes. 

INVALID. — Not  enforceable  under  the  law. 

JOINT   STOCK  COMPANIES.— An   association   of   persons   similar   to 

partnership,  but  having  capital  stock,  and  a  Board  of  Directo . 

like  a  corporation. 

JUDGMENT. — The  sentence  of  the  law  given  by  a  Court  against  the 
party  who  is  defeated  in  the  trial  of  a  case. 

JUDGMENT  DEBTOR. — The  person  against  whom  the  judgment  is 
rendered. 

JURISDICTION.— The  extent,  either  in  territory  or  kind  of  property, 
over  which  a  Court  lias  authority. 

LANDLORD.-  -1.  The  keeper  of  an  inn  or  hotel. 
2.  One  who  rents   lands  or  houses. 

LAW  MERCHANT. — The  old  English  law  in  regard  to  commercial 
transaction^. 

LEASE. — The  instrument  by  which  an  estate  for  years  is  given. 

LEGAL  TENDER. — Anything  which  is  designated  by  law  as  lawful 
money  ior  the  payment  of  debts. 

LETTER  OF  CREDIT.— A  general  letter  drawn  by  a  banker  author- 
izing certain  banks  to  pay  to  the  holder  any  amount  of  money 
up  to  a  limit,  and  draw  drafts  upon  the  bank  which  issues  the 
letter  for  the  amounts  advanced.  -I 

jjlEN. — The  right  to  retain  the  property  of  another  as  security  for 
the  payment  of  a  debt. 

LUNATIC. — A  person  who  has  lost  his  reason,  but  has  occasional 
lucid  intervals. 

MATURITY. — The  time  at  which  commercial  paper  becomes  due. 

MINOR. — A  person  under  age.     (See  Infant.) 

MISUSER. — Wrongful  using  of  a  franchise. 

MONTH. — In  the  law  of  contracts,  a  calendar  month. 

MORTGAGE. — A  written  contract  by  which  a  person,  called  a  mort- 
gagor, creates  a  lien  on  his  property  to  secure  a  debt,  owed  by 
him,  to  another,  called  the  mortgagee. 


242  COMMERCIAL    LAW. 

MUNICIPAL.—  Relating  to  a  city. 

MUNICIPAL  LAW.  —  The  law  of  any  city,  state  or  nation 

IfEGOTIABLE   PAPER.  —  Certain  written  instruments,   which,   under 

certain  conditions,  may  be  transferred  by  endorsement,  and  give 

the  holder  full  power  of  collection. 
NOTARY    PUBLIC.  —  An    officer    invested    with   power    to   administer 

oaths,   take  acknowledgments,    protest    negotiable    instruments, 

etc. 
ORDINANCE.  —  A  law  passed   by  a  city  council,  or  board    of    super- 

visors of  a  county. 
OUTLAWED.  —  A   debt   which   remains   uncollected   beyond   the   time 

allowed  by  law  for  collection. 
PARTNERSHIP.-  —  An  association  of  persons  in  business,  under  agree- 

ment to  contribute  capital,  and  divide  losses  and  gains. 
PARTY    WALL.  —  A  wall    placed  on  the  line  between  two  adjoining 

estates  for  the  purpose  of  supporting  a  building  on  either  side. 
PERILS  OF  THE  SEA.  —  All  dangers  naturally  pertaining  to  naviga- 

tion. 
PLEDGE.  —  A  delivery  of  personal   propertj',  by  a   person  called   the 

pledgor,  to  secure  the  payment  of  a  debt,  to  a  person  called  the 

pledgee. 

POLICY.  —  The  contract  of  insurance. 
POST-DATED.  —  Bearing  a  later  date  than  that  at  which  an   instru- 

ment was  actually  made. 
POWER  OF  ATTORNEY.—  A  written  instrument  by  which  an  agent 

is  appointed. 

PREMIUM.  —  The  price  paid  tor  insurance. 
PRESUMPTION.  —  An    inference    of   law,    from   certain    facts,    of    the 

existence  of  other  facts. 
PRINCIPAL.  —  1.  A  sum  of  money  bearing  interest. 

2.  A  person  who  employs  an  agent. 
PROMISSORY  NOTE.  —  A  promissory  note  is  an  unconditional  prom- 

ise in  writing  by  a  person  to  pay  a  certain  sum  of  money,  gen- 

erally "to  bearer"  or  "lo  order"  of  some  one  named  therein,  at  a 

specified  time. 
PROTEST.  —  A  formal  declaration  in  writing  by  a  notary  public,  of 

his  demand,  and  the  refusal  of  a  debtor  to  pay  the  amount  of  a 

note,  or  bill. 


A  writing  by  which  one  authorizes  another  to  vote  in  his 
place;   used  by  corporations. 

Also  the  one  who  represents  the  other. 


GLOSSARY.  243 

PUFFER.— (See  By-Bidder.) 

RATIFICATION. — Agreeing  to  be  bound  by  the  terms  of  a  voidable 
contract. 

REAL  ESTATE. — Land,  or  anything  affixed  thereto  or  contained 
therein. 

RECEIPT. — A  written  acknowledgment  of  monej-  or  property  re- 
ceived. 

RECEIVER. — A  person  appointed  by  a  Coxirt  to  take  charge  of  prop- 
erty, such  as  the  property  of  a  bankrupt,  or  of  a  dissolved  cor- 
poration. 

RELEASE. — An  instrument  similar  in  form  to  a  deed,  used  to  evidence 
the  extinguishment  of  a  debt. 

REMEDY. — The  legal  method  of  enforcing  rights  or  redressing- 
wrongs. 

KENT. — The  sum  paid  for  the  use  of  real  property. 

RECISS1O A . — The   abrogating,   or  making  void,   of   contracts. 

RESPONDED TI A  BOND. — A  bond  in  the  nature  of  a  mortgage,  giver 
for  a  loan  upon  the  cargo  of  a  vessel. 

REMAINDER. — An  estate  which  takes  effect  after  another's  estate, 
is  terminated. 

SALVAGE. — Compensation  for  saving  a  vessel  from  wreck. 

SET-OFF. — (See  Counter  Claim.) 

STATUTE. — An  act  passed  by  a  Legislature. 

STATUTE  OF  FRAUDS.— A  statute  requiring  certain  contracts  to 
be  made  in  writing. 

STATUTE  OF  LIMITATIONS.— A  statute  limiting  the  time  within 
which  actions  can  be  brought  upon  a  debt,  or  other  demand. 

SUBJECT  MATTER. — The  thing  concerning  which  a  contract  is 
made. 

SUBROGATION. — The  substituting  of  one  person  in  another's  place, 
as  substituting  a  new  creditor. 

SUIT. — An  action  on  a  claim  in  a  Court  of  justice. 

SURETY. — One  who  promises  in  writing  to  answer  for  the  debt,  de- 
fault, or  miscarriage  of  another. 

SURRENDER  VALUE. — The  sum  which  an  insurance  company  will 
pay  for  an  unexpired  policy. 

TENANT. — One  who  has  possession  of  lands  of  another  temporarily. 

TENDER. — An  offer  to  carry  out  the  terms  of  a  contract. 

TRUSTEE.— One  who  holds  property  for  the  benefit  of  another. 

USURY.— Illegal  interest. 


244  COMMERCIAL   LAW. 

VALUED  POLICY. — An  insurance  policy  which  fixes  the  value  01 
the  property  insured. 

VENDEE. — One  to  whom  anything  is  sold. 

VENDOR.— The  person  who  sells. 

VOID. — Without  any  legal  effect. 

VOIDABLE. — That  which  may  be  made  void  at  the  option  of  one  of 
the  parties  to  a  contract. 

WAIVER. — A  relinquishment  of  a  right. 

WARRANTY. — A  statement,  as  a  fact,  of  some  material  matter  con- 
cerning an  article  offered  for  sale. 


THE  LIBRARY 
UNIVERSITY  OF  CALIFORNIA 

Santa  Barbara 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
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